Policies, policy-makers and financial flows: An empirical examination

Abstract

This paper examines the response of international investors to country fiscal outcomes and the dynamics of this response according to the type of government that is in power. The issue is examined with a model that has been estimated using data from 22 OECD countries for the period of 1998 through 2008. International financial flows are highly heterogeneous and this paper finds different effects depending on the type of flow. The results of this paper suggest that an increase in government expenses increase the level of FDI and an increase in government revenues decrease the level of FDI. The evidence produced in the model also suggests that Majority governments have a negative impact on the level of the three types of capital flows.