The Effect of Inflation Targeting on Foreign Direct Investment Flows to Developing Countries

Due to the many benefits that come with foreign direct investment (FDI), such as greater economic growth and technology spillovers, developing countries strive to attract this type of investment. Although the amount of FDI in developing countries has increased greatly over the past several years, no...

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Bibliographic Details
Published in:Atlantic economic journal 2018-12, Vol.46 (4), p.459-470
Main Author: Vasileva, Iuliia
Format: Article
Language:English
Subjects:
Adoption of innovations
Banking industry
Destinations
Developing countries
Economic aspects
Economic growth
Economic models
Economics
Economics and Finance
Financial crises
Foreign direct investment
Foreign investment
Foreign investments
Inflation
Inflation (Economics)
Inflation targeting
International Economics
LDCs
Macroeconomics
Macroeconomics/Monetary Economics//Financial Economics
Microeconomics
Monetary policy
Panel data
Psychological distress
Public Finance
Retirement benefits
Spillover effect
Technology
Undergraduate Paper
United States
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Summary:Due to the many benefits that come with foreign direct investment (FDI), such as greater economic growth and technology spillovers, developing countries strive to attract this type of investment. Although the amount of FDI in developing countries has increased greatly over the past several years, not all developing countries have been successful at attracting it. A credible monetary policy, such as inflation targeting (IT), might make countries that implement it more attractive destinations for FDI flows due to the reliable macroeconomic environment created. This paper estimates the effect of IT on FDI flows to developing countries using a difference-in-differences approach and panel data for 71 countries for the period 1985 to 2013. This paper also looks at the difference between targeting and non-targeting countries in terms of FDI inflows during times of high instability. The results indicate that the adoption of IT leads to increased FDI flows to developing countries overall and, most importantly, during times of distress.
ISSN:0197-4254
1573-9678
DOI:10.1007/s11293-018-9594-6