Nonlinearities and a Pecking Order in Cross-border Investment
48 Pages Posted: 18 Nov 2021
Date Written: October 29, 2021
Nonlinearities arise in international investment because of a pecking order in barriers. Some severe barriers render all others meaningless and only when they are alleviated do other barriers become important. We show, using quantile regressions designed to model relations at more points than just the conditional mean, how various investment theories hold at different points in the distribution of bilateral cross-border equity holdings. Our results reconcile a number of findings in the literature by highlighting that datasets that focus on different points of the barriers (investment) distribution can naturally lead to different results.
Keywords: Capital flows, Capital controls, International investments, Market integration
JEL Classification: F15, F21, F30, G15
Suggested Citation: Suggested Citation