It has been a remarkably difficult empirical task to identify clear-cut real effects of exchange-rate regimes on the open economy. Similarly, no definitive view emerges as to the aggregate effects of capital account liberalizations. The main hypothesis of the paper is that a direct and an...

There is strong evidence from the launch of the single financial market in Europe on the interactions among financial globalization, international tax competition, and the fading generosity of the welfare state. Financial globalization triggers a race-to-the bottom tax competition. The tax race...

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...

We survey several mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). We focus on information frictions such as adverse selection and moral hazard, and exposure to liquidity shocks,...

Finally, we analyze a risk-diversification model, where bond holdings hedge real exchange rate risks, while equities hedge non-financial income fluctuations. An equity home bias emerges as a calibratable equilibrium outcome

The paper surveys a theory of FDI, which captures a unique feature: hands-on management standards, that enable investors to react in real time to a changing economic environment. Equipped with superior managerial skills, foreign direct investors are able to outbid portfolio investors for the top...

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 the paper. We analyze the problem of...

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 analyzes the problem of channeling domestic savings into productive investment in the presence of asymmetric...

The paper surveys a theory of FDI, which captures a unique feature: hands-on management standards, that enable investors to react in real time to a changing economic environment. Equipped with superior managerial skills, foreign direct investors are able to outbid portfolio investors for the top...