Interactions between Capital Inflows and Domestic Investment: Israel and Developing Economies

14 Pages Posted: 12 Nov 2012

See all articles by Yoel Hecht

Yoel Hecht

SAS Institute Inc.

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Nitzan Shinar

affiliation not provided to SSRN

Date Written: December 1, 2004

Abstract

The purpose of this paper is to explore econometrically the interactions between domestic investment and various types of capital inflows. We estimate these interactions using an international panel data set of sixty-four countries for the period 1976-1997. Interaction exists, especially in the FDI (foreign direct investment) and loans inflows. A noteworthy finding is the significant impact of the domestic investment on FDI inflows (0.14), after controlling for other factors of these inflows. We also find that the impact of FDI inflows on domestic investment (0.68), plagued by the endogeneity and non-stationarity problems, is a bit weaker than previously suggested in the literature,. Nevertheless, in terms of impact on domestic investment, FDI inflows are ranked highest, above the other types of capital inflow. Regarding the ranking of Israel in the sample, we find that it has an above average domestic-investment country-specific dummy and a portfolio-inflow country-specific dummy, but a below average FDI country-specific dummy. We interpret this finding as an indication of the high level of development of financial institutions in Israel.

Suggested Citation

Hecht, Yoel and Razin, Assaf and Shinar, Nitzan, Interactions between Capital Inflows and Domestic Investment: Israel and Developing Economies (December 1, 2004). Israel Economic Review, Vol. 2, No. 2, pp. 1-14, 2004. Available at SSRN: https://ssrn.com/abstract=2174329

Yoel Hecht

SAS Institute Inc. ( email )

100 SAS Campus Drive
Cary, NC 27513-2414
United States

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nitzan Shinar (Contact Author)

affiliation not provided to SSRN ( email )

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