publication . Preprint . 2004

Foreign Direct Investment versus Portfolio Investment : A Global Games Approach

Yamin Ahmad; Pietro Cova; Rodrigo Harrison;
Open Access
  • Published: 01 Sep 2004
We present a model of investment under uncertainty about fundamentals, using a global games approach. Goldstein & Razin (2003) show that there is an information based trade-off between foreign direct investment (FDI) and portfolio investment (PI) which rationalizes some well known stylised facts in the literature - the relative volatility and reversibility of foreign direct investment versus portfolio investment. We extend their result and show that uncertainty about fundamentals does not imply a multiplicity of investment outcomes even when there is an information-based trade-off between direct investments and portfolio investments. In our paper, uncertainty ab...
free text keywords: Foreign Direct Investment, Portfolio Investment, Global Games, Financial Transparency, jel:C71, jel:D82, jel:F21

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Pa i2 A i (a i; x) = Pn Nn plugging in equations 4 and 5

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