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Controlled Openness and Foreign Direct Investment
Author(s) -
Aizenman Joshua,
Yi SangSeung
Publication year - 1998
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00024
Subject(s) - capital (architecture) , foreign direct investment , capital consumption allowance , economics , capital deepening , capital outflow , openness to experience , capital account , capital formation , financial capital , capital intensity , physical capital , international economics , monetary economics , market economy , macroeconomics , human capital , history , social psychology , psychology , archaeology
The paper investigates why a developing country may adopt a partial reform. A country is considered where the ruling elite (referred to as state capital) prevents the entry of foreign capital, and taxes the private sector before reform. A higher productivity of foreign capital always increases the attractiveness of a partial reform under which state capital can control the inflow of foreign capital, but can reduce the attractiveness of a full reform under which the entry of foreign capital is unregulated. Hence, state capital’s control over foreign capital may be a necessary condition for the reform to take place at all.