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Mr. Ashoka Mody and Michael Walton

The halfway measures taken toward privatizing East Asia’s infrastructure have resulted in weak corporate governance, vulnerability to crises, and inefficiency. Faced with slowing growth, the region needs to shift its focus to increasing competition and adopting needed regulation.

Mr. Alexander Lehmann

Based on industry-level data for majority-owned U.S. foreign affiliates in 49 countries, this paper identifies the determinants of the cross-country distribution of fixed capital within multinational companies. Controlling for market size and trade openness, it is shown that U.S.-owned capital stocks are high in countries with a history of high profitability and low earnings variability. Similarly, the formation of fixed capital is encouraged in host countries with low variable costs, low political risks, and open trade regimes. At the same time, capital expenditures in the late 1990s appear to be insensitive to contemporaneous changes in risk and market shares, underlining investors’ sluggish response to the changing characteristics of their host markets. These findings underline the importance of risk in deterring fixed capital expenditures in—and by implication capital flows to developing countries.

JOHN PAGE

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

Ajay Chhibber and CHAD LEECHOR

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.