In this paper we analyze the conditions under which a foreign direct investment (FDI) involves a net capital flow across countries. Frequently, foreign direct investment is financed in the host country without an international capital transfer. We develop a model in which the optimal choice of financing an international investment trades off the relative costs and benefits associated with the a...

In this paper we analyze the conditions under which a foreign direct investment (FDI) involves a net capital flow across countries. Frequently, foreign direct investment is financed in the host country without an international capital movement. We develop a model in which the optimal choice of financing an international investment trades off the relative costs and benefits associated with the a...

In this paper we compare the two standard forms of international investments in developing countries, debt and foreign direct investment, from a finance perspective. It is shown that the sovereign risks associated with debt finance are generally less severe than the ones which come with FDI. FDI is chosen only if the foreign investor is more efficient in running the project, if the project is r...

In 1999, the Chinese government reported a foreign direct investment (FDI) inflow in the amount of $40.4 billion.1 This was a sharp drop from $45.6 billion in 1998, and government officials and economic analysts have begun to voice concerns about the economic effects of FDI contraction for China. Indeed, one of the alleged benefits associated with the impending Chinese membership in the World T...

Using firm-level census data, this paper examines the spillover effects of foreign direct investment (FDI) on domestic firms in the Chinese manufacturing industry between 2000 and 2003. We find that FDI has a significant positive spillover on industry productivity that decreases as the share of FDI in the industry increases. These positive spillovers are more likely to occur through forward lin...

We examine the choice between Foreign Direct Investment and Foreign Portfolio Investment at the level of the source country. Based on a theoretical model, we predict that (1) source countries with higher probability of aggregate liquidity crises export relatively more FPI than FDI, and (2) this effect strengthens as the source country’s capital market transparency worsens. To test these hypothe...

This paper examines two interrelated aspects of Asian economic dynamism and the management of external shocks, in the context of outward foreign direct investment (FDI) from developing East Asia. Outward FDI from these economies has been growing rapidly, driven by deeper economic integration, more open FDI regimes, growing technological and financial sophistication, and rising savings levels. T...

This paper evaluates evidence of the impact of outbound foreign direct investment (FDI) on domestic investment rates. OECD countries with high rates of outbound FDI in the 1980s and 1990s exhibited lower domestic investment than other countries, which suggests that FDI and domestic investment are substitutes. U.S. time series data tell a very different story, however: years in which American mu...