Is FDI a Safer Form of Investment

IADB Research Department Working Paper No. 416

27 Pages Posted: 6 Nov 2000

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: April 2000

Abstract

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.

JEL Classification: E44, F34, F31

Suggested Citation

Fernandez-Arias, Eduardo and Hausmann, Ricardo, Is FDI a Safer Form of Investment (April 2000). IADB Research Department Working Paper No. 416, Available at SSRN: https://ssrn.com/abstract=237457 or http://dx.doi.org/10.2139/ssrn.237457

Eduardo Fernandez-Arias (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue, NW
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Ricardo Hausmann

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

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Mailbox 34
Cambridge, MA 02138
United States
617-496-3740 (Phone)
617-496-8753 (Fax)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/ricardo-hausmann

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