z-logo
Premium
Sudden Stop and Sudden Flood of Foreign Direct Investment: Inverse Bank Run, Output, and Welfare Distribution
Author(s) -
Calvo Guillermo A.
Publication year - 2014
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12041
Subject(s) - sudden stop , economics , foreign direct investment , flood myth , welfare , investment (military) , monetary economics , capital flows , macroeconomics , market economy , geography , liberalization , politics , archaeology , political science , law
In this paper, I focus on a phenomenon that has not received much attention in the literature, namely that the mere expectation of foreign direct investment (FDI) incentivizes long‐maturity investment projects by domestic residents, and a Sudden Stop when expectations are frustrated. Long‐maturity investment projects enhance productivity but increase the economy's vulnerability to Sudden Stop. The discussion is framed in a context in which a Sudden Stop follows a surge of capital inflows (Sudden Flood), and FDI is concentrated on ongoing projects. A Sudden Stop episode can trigger a fire sale of long‐term assets, output collapse, and welfare redistribution, which is another ignored phenomenon.

This content is not available in your region!

Continue researching here.

Having issues? You can contact us here