Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104215
Authors: 
Marin, Dalia
Schnitzer, Monika
Year of Publication: 
2006
Series/Report no.: 
Munich Discussion Paper 2006-22
Abstract: 
In this paper we analyze the conditions under which a foreign direct investment (FDI) involves a net capital flow across countries. Frequently, foreign direct investment is financed in the host country without an international capital movement. We develop a model in which the optimal choice of financing an international investment trades off the relative costs and benefits associated with the allocation and effectiveness of control rights resulting from the financing decision. We find that the financing choice is driven by managerial incentive problems and that FDI involves an international capital flow when these problems are not too large. Our results are consistent with data from a survey on German and Austrian investments in Eastern Europe.
Subjects: 
Multinational firms
Firm specific capital costs
Internal capital markets
international capital flows
JEL: 
F23
F21
G32
L20
D23
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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