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Central bank independence, financial openness, and cross-border flows of capital

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  • Yayi, Constant L.

Abstract

Countries worldwide compete for international capital and the host country’s macroeconomic stability is among the fundamental factors that matter for foreign investors. In this letter, we specifically examine the effect of central bank independence on cross-border capital flows using the OECD bilateral FDI data over the period 1985–2013. Our results indicate that the intensive margins of outward FDI flows to host countries increase significantly when executive leaders grant greater autonomy to their central banks. Moreover, middle and low-income countries with less overall financial restrictions experience a much greater impact of central bank independence on intensive margins of FDI inflows.

Suggested Citation

  • Yayi, Constant L., 2023. "Central bank independence, financial openness, and cross-border flows of capital," Economics Letters, Elsevier, vol. 225(C).
    • Handle: RePEc:eee:ecolet:v:225:y:2023:i:c:s0165176523000678
    DOI: 10.1016/j.econlet.2023.111042
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    References listed on IDEAS

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    Cited by:

    1. Taniya Ghosh & Yadavindu Ajit, 2023. "Central bank transparency, the role of institutions and inflation persistence," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2023-012, Indira Gandhi Institute of Development Research, Mumbai, India.

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    More about this item

    Keywords

    Foreign direct investment; Central bank independence; Capital controls;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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