تحرک سرمایه در کشورهای پیشرفته

Mobility of capital has been studied by examining savings–investment correlations, real interest rates differentials, covered and uncovered interest parity, and equity home bias. All these examine the capital mobility question indirectly. This paper directly tests the return/total flow specification of the Mundell–Fleming model. It finds that while portfolio equity and debt flows are, direct investment is not; and in every case, the inclusion of direct investment makes the aggregative-capital variable unresponsive to interest rates. Asset-based exchange rate models may benefit by looking at the composition of cross-border assets, countries can have independent monetary policies with full capital mobility, and macroeconomic policy trilemma for open economies disappears.

There are many ways the question of international mobility of capital has been approached in the economics literature. First, savings investment correlations within a country have been examined. This investigation was set-off by Feldstein and Horioka (1980) who found that countries’ investment rates are highly correlated with their national savings rates. Their finding that added savings in a country are associated with an almost equal further investment in that country has been taken as evidence of international capital immobility. Feldstein–Horioka result was confirmed by many subsequent studies (e.g., Bayoumi, 1990; Dooley, Frankel, & Mathieson, 1987) in the following decade. Nevertheless, some of the more recent writings on this topic present mixed evidence.1 Further, real interest rates/rates of return have been found to vary across countries (see, e.g., Kempa & Nelles, 1999; Lane & Milesi-Ferriti, 2001; Macdonald & Nagasayu, 2000; Miyakoshi, 1999 and Limosani, 2000). If there were no barriers to capital mobility, real return differentials should not exist among advanced economies. In fact, Dooley et al. (1987) define international capital mobility as the condition under which the expected differential yields on physical capital in different countries are eliminated by net savings flows. Dooley et al. point out that one ought to distinguish between real or physical capital mobility and financial capital mobility. The savings investments correlations and real return differentials indicate physical capital immobility. Still, physical capital immobility can exist and, is consistent with, financial capital mobility. Financial capital mobility has been studied in the literature by examining the covered and uncovered interest parity conditions. Following Frankel (1993), the former applies when capital is perfectly mobile, and the latter when capital is perfectly substitutable. Perfect capital mobility between countries means that actual portfolio composition adjusts instantaneously to desired portfolio composition. Assuming no risk of default or future capital controls, perfect capital mobility implies that the interest rate on a domestic bond is equal to interest rate on a similar foreign bond plus the forward premium on foreign exchange, i.e., it implies covered interest parity.2 Perfect substitutability is the much stronger assumption that asset holders are indifferent as to the composition of their bond portfolios as long as the expected rate of return on the two countries’ bonds is the same when expressed in any common numeraire. It would imply the uncovered interest rate parity: the interest rate on a domestic bond is equal to the interest rate on a foreign bond plus the expected rate of appreciation of foreign currency.3 Uncovered interest parity (and, by implication, perfect substitutability) can be tested jointly with market efficiency by examining the ex post excess return on domestic currency where the latter is defined as the interest differential in excess of ex post depreciation. Under the joint null hypothesis, the ex post excess return should be random. It is difficult to test this parity condition by itself because expectations are not observable. Covered interest parity condition has been tested for developed countries for different kinds of assets. Taylor (1989) and Holmes (2001) find this condition holds for short-term Euro-market rates. Popper (1993) shows that long-term financial capital is as mobile as short-term financial capital; not only across Europe but also across Canada, Europe, Japan, and the U.S.4 However, another body of literature casts doubts on the mobility of financial capital. This is the equity home bias literature.5 It is generally agreed that international diversification can provide large potential gains to investors. Yet, French and Poterba (1991) demonstrate that individual portfolios are overwhelmingly weighted in favor of domestic stocks. An implication of their work is that British investors must expect local returns to be more than 500 basis points per annum above U.S. returns to justify holding so many UK stocks. Kang and Stulz (1997) find that foreign investors in Japan do not hold Japanese market portfolio but own firms that are as similar as possible to their home firms. Coval and Moskowitz (1999) find home bias at home, i.e., U.S. investment managers exhibit strong preferences for locally headquartered firms. Thus, the extent of capital mobility even among advanced economies is by no means a settled question. The literature cited above examines the capital mobility question indirectly. The savings investment correlations, real interest rate/rate of return differentials, and home bias are taken as evidence for capital immobility. On the other hand, covered interest rate parity is considered to imply financial capital mobility. The widely accepted Mundell–Fleming model addressed the capital mobility question directly: it specified capital account as a flow function of interest rate levels. There has been little empirical examination of this intuitive specification for (total) capital. Returns/flows relationship for portfolio equity has been examined. Thus, Bohn and Tesar (1996), Kant (2003), Portes and Rey (2000), and Ruffm and Rassekh (1986) find no evidence that return-chasing motive explains portfolio equity investment; while Brennan and Aranda (1999), Froot, O’Connell, and Seasholes (1998), and Tesar (1999) obtain stronger results on the returns/portfolio investment relationship. This paper empirically examines the returns/flows relationship for all major components of capital. One distinction in this paper is between direct capital and capital that does not take that form. According to the internalization hypothesis, multinational firms (MNFs) come into being to internalize returns to their ownership-specific inputs (see Hood & Young, 1979). Ethier (1986) concludes that firm-specific (or internal) transactions are the singular characteristic distinguishing multinational's transactions from the (usual) inter-firm transactions. For example, specific inputs like R&D, advertising, finance, distribution, management, trade secret, patent, and organization could be ownership-specific. In fact, it is the ownership of these inputs that enables MNFs to produce and compete effectively in countries with different industrial relations, legal system, culture, and language. Thus, host of micro and industrial organization type of factors explain both the establishment of an MNF and continuing direct investment. We examine below whether direct and portfolio (and other capital) investments are functions of interest rate levels. We will show that while portfolio equity and debt flows are, direct investment is not. Further, in every case, the inclusion of direct investment makes the aggregative-capital dependent variable unresponsive to interest rates.