Is FDI a Safer Form of Financing?

27 Pages Posted: 21 Apr 2011

See all articles by Eduardo Fernandez-Arias

Eduardo Fernandez-Arias

Inter-American Development Bank (IDB)

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS)

Date Written: March 2000


It has been common to attribute financial crises to short-term capital inflows, while foreign direct investment (FDI) is seen as a safer form of finance. The relationship between crises and the composition of capital flows is particularly relevant at present because the flow of capital to Latin America is becoming increasingly dominated by FDI. This paper asks whether the composition of capital inflows and of the stock of foreign liabilities is relevant for financial crises, be it their frequency, depth, or length. It explores the possible role of FDI as a benign form of external liability relative to other classes of liabilities, reviewing both analytical and empirical arguments.

Suggested Citation

Fernandez-Arias, Eduardo and Hausmann, Ricardo, Is FDI a Safer Form of Financing? (March 2000). IDB Working Paper No. 347, Available at SSRN: or

Eduardo Fernandez-Arias (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue, NW
Research Department
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United States
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202-623-2481 (Fax)

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Mailbox 34
Cambridge, MA 02138
United States
617-496-3740 (Phone)
617-496-8753 (Fax)


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