Template-Type: ReDIF-Article 1.0

Author-Name: Pablo Federico
Author-Workplace-Name: BlackRock
 
Author-Name: Carlos Vegh
Author-Workplace-Name: World Bank

Author-Name: Guillermo Vuletin
Author-Workplace-Name: World Bank

Title: The effect of capital-flows composition on output volatility

Abstract: By  distinguishing  between  foreign  direct  investment  (FDI)  and  portfolio  and other  investments  (OTR),  we  study  the  effects  of  the  composition  of  capital inflows on output volatility. We develop a simple empirical model which, under certain  conditions  satisfied  in  the  data,  yields  three  key  testable  implications. First,  output  volatility  should  depend  positively  on  FDI  and  OTR  volatility. Second, output  volatility  should  be  an  increasing  function  of  the  correlation between FDI and OTR. Third, for low values of the FDI share, output volatility should be a decreasing function of the share of FDI in total capital inflows. We find strong support in the data for all three implications, even after controlling for other factors that may influence output volatility and dealing with potential endogeneity problems.

Classification-JEL: F23; F32; F36; F44
 
Keywords: Foreign direct investment; capital inflows; output volatility.
Journal: Económica

Pages: 95-132
Volume: 64
Year: 2018
Month: January-December
File-URL: https://revistas.unlp.edu.ar/Economica/article/view/6109/5550
File-Format: Application/pdf
Handle: RePEc:akh:journl:616