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Flowing Together or Flowing Apart
José María Larrú Ramos and Martha Carro Fernández, World Economics, March 2014
At a time when international institutions and governments rethink the structure of development financing, the analysis of the relationship between different capital flows becomes significant. Given the relevance assigned by international institutions to the potential complementarities between foreign direct investment (FDI) and official development assistance (ODA), our study examines the relation between these flows for two countries that have attracted large amounts of the former: Argentina and Brazil. We analyse ODA and FDI time-series by donors and sectors, paying special attention to ODA allocated to economic infrastructure. In light of the frequent turbulences experienced by international financial markets, we also study the volatility of both flows, as well as the relation between FDI and ODA shocks. With the exception of Japanese flows to Brazil, we find no systematic relation between FDI and ODA flows even when the main foreign direct investors are also the main donors.

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