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| Author: | Albuquerque, R. |
| Title: | The composition of international capital flows: risk sharing through foreign direct investment |
| Journal: | Journal of International Economics
2003 : DEC, VOL. 61:2, p. 353-383 |
| Index terms: | Capital flows Country risk Foreign investment Intangible assets Risk sharing Volatility |
| Language: | eng |
| Abstract: | Evidence on international capital flow suggests that foreign direct investment (FDI) is less volatile than other financial flows. To explain this finding international capital flows are modeled under the assumptions of imperfect enforcement of financial contracts and inalienability of FDI. Imperfect enforcement of contracts leads to endogenous financing constraints and the pricing of default risk. Inalienability implies that it is not as advantageous to expropriate FDI relative to other flows. These features combine to give a risk sharing advantage to FDI over other capital flows. |
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