Economists tend to favor the free �ow of capital across national borders, because it allows capital to seek out the highest rate of return. Unrestricted capital �ows may also o¤er several advantages, as noted by Feldstein (2000). First, international �ows reduce the risk faced by owners...

Even though financial markets today show a high degree of integration, the world capital market is still far from the textbook story of high capital mobility. The failure to have a tax scheme in which the rate of returns across countries are equated can result in inefficient capital flows across...

The Paper provides a reconciliation of Lucas’ paradox, based on fixed setup costs of new investments. With such costs, it does not pay a firm to make a ‘small’ investment, even though such an investment is called for by marginal productivity conditions. Using a sample of 45 developed and...

Economists tend to favor the free ow of capital across national borders, because it allows capital to seek out the highest rate of return. Unrestricted capital ows may also o¤er several advantages, as noted by Feldstein (2000). First, international ows reduce the risk faced by owners of capital...

Foreign direct investment (FDI) is observed to be a predominant form of capital flows to low- and middle-income countries with insufficiently developed capital markets. This paper analyses the problem of channelling domestic savings into productive investment, in the presence of asymmetric...

We develop a simple information-based model of FDI flows. On the one hand, the abundance of "intangible" capital in specialized industries in the source countries, which presumably generates expertise in screening investment projects in the host countries, enhances FDI flows. On the other hand,...

We study the role of productivity and corporate taxation as driving forces of FDI among OECD countries in the presence of threshold barriers, which generate two margins for FDI decisions. Some simulations, based on the estimation results, suggest that there are marked differences in the...

Foreign direct investment (FDI) is observed to be a predominant form of capital flows to emerging economies, especially when they are liquidity-constrained internationally during a global financial crisis. The financial aspects of FDI are the focus of this paper. We analyze the problem of...