Not All Capital Waves are Alike: A Sector-Level Examination of Surges in FDI Inflows
41 Pages Posted: 17 Jun 2013
Date Written: June 2013
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: Suggested Citation