FIW-wiiw-Seminar in International Economics
Regular lecture series on current issues in international economics.
The seminar is part of the activities of FIW, the Centre of Competence in International Economics.Series Details
Monday, 25 October 2010, 2:00 pm
In the process of catching up to the EU income levels, emerging European economies built up external imbalances and attracted large capital inflows prior to the global financial crisis. Many attribute the severity of the crisis to excessive capital inflows. This paper examines the effect of structural distribution of FDI on external vulnerability – trade account balance in particular – to see if a concentration in FDI in nontradables leads to large external imbalance as is often perceived. Our study finds that this is indeed the case: trade account deficit is reduced by 0.1-0.2 per cent of GDP when a share of tradable FDI to total FDI increases by 1 per cent. We also study what determines the pattern of sectoral distribution of FDI across countries, and draw policy implications for more stable and sustainable growth strategy.