The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS
International Monetary Fund Working Paper No. 12/242
44 Pages Posted: 16 Oct 2012
There are 2 versions of this paper
The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS
The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS
Date Written: October 16, 2012
Abstract
In this paper we investigate whether better information about the macroeconomic environment of an economy has a positive impact on its capital inflows, namely portfolio and foreign direct investment (FDI). The purpose of our study is to explicitly quantify information asymmetries by compliance with the IMF's Special Data Dissemination Standard (SDDS). For FDI, we find statistically significant and robust support for this hypothesis: SDDS subscription increased inflows by an economically relevant magnitude of about 60 percent. We also find evidence of aversion against political and macroeconomic risk as determinants of portfolio and FDI flows and use a non-parametric test for spatial correlation in the residual of capital flows.
Keywords: determinants of capital flows, information, panel data, risk, SDDS, IMF, FDI, portfolio investment, spatial econometrics
JEL Classification: C33, F21, G14
Suggested Citation: Suggested Citation
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The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS