The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS
IMF Working Papers, October 5, 2012
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- The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS
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Bibliographic details
- Authors: Yuko Hashimoto, Konstantin Wacker
- Published: October 5, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475568660.001
Summary and research question
- Investigates whether better information about the macroeconomic environment of an economy has a positive impact on its capital inflows, namely portfolio and foreign direct investment (FDI).
- Purpose: explicitly quantify information asymmetries by compliance with the IMF's Special Data Dissemination Standard (SDDS).
- Authors: Yuko Hashimoto, Konstantin Wacker
- Date: October 5, 2012
Key findings
- SDDS subscription increased FDI inflows by an economically relevant magnitude of about 60 percent.
- Statistically significant and robust support for the hypothesis that better information (via SDDS compliance) raises FDI.
- Evidence of aversion against political and macroeconomic risk as determinants of portfolio and FDI flows.
- Use of a non-parametric test for spatial correlation in the residual of capital flows.
Methodology and analytical approach
- Focus on portfolio and foreign direct investment (FDI) flows as outcomes.
- Information asymmetries proxied by compliance with the Special Data Dissemination Standard (SDDS).
- Application of a non-parametric test for spatial correlation in residuals of capital flows.
- Use of panel data techniques (term appears in Keywords: panel data).
Policy implications and themes
- Improving macroeconomic data transparency (SDDS compliance) can materially increase FDI inflows (about 60 percent effect reported).
- Political and macroeconomic risk reduction is relevant for attracting both portfolio and FDI flows.
- Spatial dependence in capital flow residuals is considered, implying potential cross-country spillovers or contagion effects in capital movements.