Article 0012008

INTERNATIONAL BUSINESS REVIEW JOURNAL

INTERNATIONAL BUSINESS REVIEW JOURNAL.

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Foreign Direct Investment: Analysis of Aggregate Flow
Published 2006.

Razin, Assaf and Sadka, Efraim

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1. The Bernard Schwartz Chair in Global Markets, Tel-Aviv University; The Friedman Chair in International Economics, Cornell University; CESifo; CEPR; and NBER.

2. The Heury Kaufman Chair in International Capital Markets, Tel-Aviv Uni- versity; CESifo; and IZA.

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1. Introduction

2. Strategic Recommendations

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Vitae

Abstract

Economists tend to favor the free áow of capital across national borders, because it allows capital to seek out the highest rate of return. They also o§er several other advantages . First, they reduce the risk faced by owners of capital by allowing them to diversify their lending and investment. Second, the global integration of capital markets can contribute to the spread of best practices in corporate governance, accounting standards, and legal traditions. Third, the global mobility of capital limits the ability of governments to pursue bad policies.

Capital can áow across countries in a variety of ways. One can distinguish among three major ones: foreign direct investment (FDI), foreign portfolio investment and loans. Among all these types, FDI, which involves a lasting interest and control, stands out. The world áows of FDI rose about sevenfold (in current U.S. dollars) over the 1990ís; the vast majority is áowed between developed countries, but there are recently increased áows into emerging markets.

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