Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/39513
Authors: 
Brada, Josef C.
Tomsik, Vladimír
Year of Publication: 
2003
Series/Report no.: 
ZEI working paper B 10-2003
Abstract: 
We show that the imputation of reinvested profits of the subsidiaries of foreign firms as a debit item on a host country's balance of payments account tends to overstate the current account deficit and to make the host country seem more vulnerable to financial crisis. We also show that, because of the workings of the FDI financial life cycle, this phenomenon is most evident for countries that have recently received large inflows of capital. The transition economies of East Europe certainly fall among such countries, and we show that, for the Czech Republic and Hungary, this imputation has a large effect on their reported current account balance. We verify the working of the FDI financial life cycle using a panel of transition economies.
Subjects: 
balance of payments
foreign exchange crisis
foreign direct investment
transition economies
JEL: 
F21
F23
F34
Document Type: 
Working Paper

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