Buch, Claudia M. Heinrich, Ralph P. Pierdzioch, Christian
Year of Publication:
[Publisher:] Institut für Weltwirtschaft (IfW) [Place:] Kiel [Year:] 1998
Kiel Working Paper No. 860
Kiel Institute of World Economics (IfW), Kiel
Capital flight has characterized the transformation process in Russia. Inflows of foreign direct investment have been minor and have been preceeded by inflows of portfolio capital. The paper shows that uncertainty about macroeconomic stabilization exhibits a strong negative effect on the volume of capital inflows when investment decisions are irreversible. Reducing uncertainty may but must not necessarily lead to more investment. The fact that monetary stabilization policies have not been accompanied by comprehensive institutional reforms can explain the pattern of Russia's capital flows in general and the dismal performance in attracting foreign direct investment in particular.