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Does FDI Guarantee the Stability of International Capital Flows? Evidence from Malaysia
Author(s) -
Bird Graham,
Rajan Ramkishen S.
Publication year - 2002
Publication title -
development policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.671
H-Index - 61
eISSN - 1467-7679
pISSN - 0950-6764
DOI - 10.1111/1467-7679.00165
Subject(s) - casual , presumption , foreign direct investment , economics , capital (architecture) , monetary economics , international economics , capital flows , investment (military) , empirical evidence , foreign capital , macroeconomics , market economy , political science , liberalization , history , philosophy , archaeology , epistemology , politics , law
The conventional wisdom is that crises are largely due to swings in short‐term capital. Economies that finance their current account deficits mainly via foreign direct investment (FDI) are therefore seen as being less susceptible to a crisis. The analysis in this article, backed up by some empirical evidence drawn from Malaysia, challenges the casual presumption that the switch towards FDI alone will automatically imply that extreme capital instability will become a thing of the past.