How do foreign investors impact domestic economic activity?Evidence from India and China

Chotibhak, Jotikasthira, Lundblad, Christian and Ramadorai, Tarun (2013) How do foreign investors impact domestic economic activity?Evidence from India and China. Journal of International Money and Finance., 39. pp. 89-110.

Abstract

There has been renewed advocacy for restrictions on international financial flows in the wake of the recent financial crisis. Motivated by this trend, we explore the extent to which cross-border flows affect real economic activity. Unlike previous research efforts that focus on aggregated capital flows, we exploit novel data on forced trading by global mutual funds as a plausible source of exogenous flow shocks. Such forced trading is known to generate large liquidity and price effects, but its real impacts have not been studied extensively. We find that both country- and firm-level investment growth rates are significantly affected by these exogenous capital shocks, and that their effect is more pronounced for firms whose marginal investment decisions are more equity-reliant.

Item Type: Article
Keywords: Capital flows; Mutual funds; Emerging markets; Investment; Equity dependence; finance
Subject(s): Finance
Date Deposited: 07 Mar 2014 11:32
Last Modified: 23 Feb 2017 11:17
Funders: Not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/4983

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