Investment intensity and foreign direct investment flows to emerging economies

This study uses microeconometric methods to estimate the effect of a country’s first attainment of investment-grade status on foreign direct investment flows in emerging economies. Achieving investment-grade status is treated as a treatment, and the study seeks to replicate the randomization conditions characteristic of a natural experiment in order to calculate the counterfactuals for emerging economies that achieved investment-grade status during the period 1996–2011. The results show that achieving investment-grade status increases foreign direct investment flows in the three years following that treatment. However, no evidence is found to support a permanent or long-term treatment effect. (Audio: Department of Economic Publications)