Foreign direct investment (FDI) flows to developing countries surged in the 1990s to become their leading source of external financing. This rise in FDI volume was accompanied by a marked change in its composition: investment taking the form of acquisition of existing assets (mergers and...

The Argentine crisis has been variously blamed on fiscal imbalances, real overvaluation, and self-fulfilling investor pessimism triggering a capital flow reversal. The authors provide an encompassing assessment of the role of these and other ingredients in the recent macroeconomic collapse. They...

The authors analyze the unparalleled increase in foreign direct investment to emerging market economies in the past 25 years. Using a large cross-country time-series data set, the authors evaluate the dependence of foreign direct investment on global factors or worldwide sources of risk (that...

Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, because capital goods imports are excluded from the analytical framework. The author argues that such an exclusion is both arbitrary and unrealistic. The...

The authors analyze the response of private and public investment to external shocks, macroeconomic adjustment, and structural reform in three sets of countries: (a) countries that pursued structural reform and liberalization in Latin American in the 1970s (Chile) or the 1980s (Mexico and...

A recent (but rapidly growing) literature has focused on how uncertainty and instability affect the adoption of fixed investment projects. That literature shows that if fixed investment projects are costly or impossible to reverse, uncertainty can become a powerful deterrent to investment. The...

Conventional aggregate models of open economies typically rule out trade in capital goods. But capital goods account for a major share of the world trade. In 1990, they represented more than 40 percent of U.S. merchandise exports and more than 30 percent of its imports. In the same year, capital...

This paper explores empirically the role of risk and return in the observed evolution of net foreign asset positions of industrial and developing economies. The paper adopts a dynamic approach in which investors'portfolios adjust gradually to their long-run equilibrium, defined by a standard...

The impact of uncertainty on investment has attracted considerable attention in the analytical and empirical macroeconomic literature. In theory, however, uncertainty can affect investment through different channels, some of which operate in mutually opposing direction. So, the sigh of its...

Capital flows to developing countries are small and take mostly the form of loans rather than direct foreign investment. We build a simple model of North-South capital flows that highlights the interplay between diminishing returns, production risk and sovereign risk. This model generates a set...