Does FDI Guarantee the Stability of International Capital Flows? Evidence from Malaysia

Graham Bird and Ramkishen Rajan

Development Policy Review, 2002, vol. 20, issue 2, 191-202

Abstract: The conventional wisdom is that crises are largely due to swings in short‐term capital. Economies that finance their current account deficits mainly via foreign direct investment (FDI) are therefore seen as being less susceptible to a crisis. The analysis in this article, backed up by some empirical evidence drawn from Malaysia, challenges the casual presumption that the switch towards FDI alone will automatically imply that extreme capital instability will become a thing of the past.

Date: 2002
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