Corruption, Composition of Capital Flows, and Currency Crises
This chapter examines the influences of corruption and lack of transparency on capital flows composition. It focuses on the foreign direct investment (FDI). Corruption may influence the composition of capital inflows in such a way that the country is more likely to experience a currency crisis. A corrupt country seems to have a composition of capital inflows that is relatively light in FDI and relatively heavy in bank loans. Countries that are more corrupt tend to have a capital inflow structure that depends relatively more on bank borrowing than FDI. Furthermore, corruption could lead to a financial crisis by weakening domestic financial supervision and damaging the quality of banks' and firms' balance sheets. Thus, the connection between corruption and financial crises offers a reason to decrease corruption. The key to greater financial stability is not corruption per se but foreign loans and other short-term capital.
Chicago Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.
If you think you should have access to this title, please contact your librarian.
To troubleshoot, please check our FAQs, and if you can't find the answer there, please contact us.