Not All Capital Waves are Alike: A Sector-Level Examination of Surges in FDI Inflows

41 Pages Posted: 17 Jun 2013

See all articles by Dennis Reinhardt

Dennis Reinhardt

Bank of England

Salvatore Dell'Erba

University of Geneva - Graduate Institute of International Studies (HEI)

Date Written: June 2013

Abstract

We examine episodes of large gross foreign direct investment (FDI) inflows - surges - at the sectoral level in emerging market economies. We find that surges in the financial sector, unlike surges in the non-financial sectors, are associated with boom-bust cycles in GDP and expansions of credit in foreign currency. In terms of the determinants of surges, we find that global and contagion factors have a stronger effect in the financial than the non-financial sectors. We also document a role for policies related to capital account openness: restrictions on other forms of capital inflows tend to increase the likelihood of surges in financial sector FDI.

Keywords: Foreign direct investment, surges, capital flow determinants, sectoral level, emerging market economies

JEL Classification: F21, F32

Suggested Citation

Reinhardt, Dennis and Dell'Erba, Salvatore, Not All Capital Waves are Alike: A Sector-Level Examination of Surges in FDI Inflows (June 2013). Bank of England Working Paper No. 474. Available at SSRN: https://ssrn.com/abstract=2280313 or http://dx.doi.org/10.2139/ssrn.2280313

Dennis Reinhardt (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Salvatore Dell'Erba

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

Avenue de la paix 11A
Geneva, CH-1202
Switzerland

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