Abstract
We examine the capital flows-domestic investment relationship for 60 developing countries from 1979 to 1999. In the 1990s, even as liberalization attracted new flows, foreign capital stimulated less domestic investment than in the preceding decade. With greater financial integration, governments accumulated more international reserves and domestic residents diversified by investing abroad. Foreign investors were also motivated by diversification objectives rather than by unmet investment needs. Inflows were channeled increasingly through portfolio flows-or through foreign direct investment (FDI) with the characteristics of portfolio capital-resulting in weak investment stimulus. However, stronger policy environments strengthened the link between inflows and investment.
Original language | English (US) |
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Pages (from-to) | 249-266 |
Number of pages | 18 |
Journal | Journal of International Economics |
Volume | 65 |
Issue number | 1 |
DOIs | |
State | Published - Jan 2005 |
Externally published | Yes |
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
Keywords
- Capital inflows
- Domestic investment
- International financial integration