Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5083986 | International Review of Economics & Finance | 2007 | 23 Pages |
Abstract
This paper develops a positive theory of two-way capital flows-the outward flight of productive capital, and inward foreign direct investment that acquires ownership of local production units. The model exploits insights from decision-making under uncertainty, and traces out how entrepreneurial incentive to engage in risky production impacts equilibrium returns on capital. Contrary to expectation, productive assets tend to flow from capital-poor to capital-rich economies, while foreign direct investment follows the reversed pattern. By examining the nature of optimal interventions, the paper also demonstrates the inherent conflict of interests between host and source countries engaged in capital market liberalization.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Arnab K. Basu, Nancy H. Chau,