Substitution between Foreign Capital in China, India, the Rest of the World, and Latin America: Much Ado About Nothing?

32 Pages Posted: 20 Apr 2016

See all articles by Marcelo Olarreaga

Marcelo Olarreaga

University of Geneva; Centre for Economic Policy Research (CEPR)

Daniel Lederman

World Bank - Latin America and Caribbean Region

Javier Cravino

University of California, Los Angeles

Date Written: September 1, 2007

Abstract

This paper explores the impact of the emergence of China and India on foreign capital stocks in other economies. Using bilateral data from 1990-2003 and drawing from the knowledge-capital model of the multinational enterprises to control for fundamental determinants of foreign capital stocks across countries, the evidence suggests that the impact of foreign capital in China and India on other countries' foreign capital stocks has been positive. This finding is robust to the use of ordinary least squares, Poisson, and negative binomial estimators; to the inclusion of time and country-pair fixed effects; to the inclusion of natural-resource endowments; and to the use of the sum of foreign capital stocks in Hong Kong (China) and mainland China instead of using only the latter's foreign capital stocks. There is surprisingly weak evidence of substitution in manufacturing foreign capital stocks away from Central America and Mexico in favor of China, and from the Southern Cone countries to India, but these findings are not robust to the use of alternative estimation techniques.

Keywords: E-Business, Foreign Direct Investment, Economic Theory & Research, Debt Markets, Currencies and Exchange Rates

Suggested Citation

Olarreaga, Marcelo and Lederman, Daniel and Cravino, Javier, Substitution between Foreign Capital in China, India, the Rest of the World, and Latin America: Much Ado About Nothing? (September 1, 2007). World Bank Policy Research Working Paper No. 4361, Available at SSRN: https://ssrn.com/abstract=1016257

Marcelo Olarreaga (Contact Author)

University of Geneva ( email )

40 Boulevard du Pont-d'Arve
Genève, CH - 1205
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Daniel Lederman

World Bank - Latin America and Caribbean Region ( email )

1818 H Street NW
Washington, DC 20433
United States

HOME PAGE: http://sites.google.com/site/danielledermanworldbank/

Javier Cravino

University of California, Los Angeles

Box 951477
Los Angeles, CA 90095-1477
United States

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