Christopher Hajzler is a Senior Analyst in the Emerging Markets Division of the International Economic Analysis Department. His primary research interests include the study of the effects of political risk on international capital flows, expropriation of foreign direct investments, and Law-of-One-Price deviations within and across countries. Prior to joining the Bank of Canada, he obtained a PhD in Economics from the University of Western Ontario, and was Assistant Professor/Lecturer at the University of Otago, New Zealand.
Previously reported effects of institutional quality and political risks on foreign direct investment (FDI) are mixed and, therefore, difficult to interpret. We present empirical evidence suggesting a relatively clear, statistically robust, and intuitive characterization.
Inflation can affect both the dispersion of commodity-specific price levels across locations (relative price variability, RPV) and the dispersion of inflation rates (relative inflation variability, RIV). Some menu-cost models and models of consumer search suggest that the RIV-inflation relationship could differ from the RPV-inflation relationship.
Growth has slowed in many emerging-market economies (EMEs) since the 2007–09 global financial crisis, reflecting both cyclical and structural factors. In this context, it will be in-creasingly important for EMEs to raise potential growth by maintaining steady progress on structural reforms. How do structural reforms generally support growth? What are the re-form priorities for EMEs over recent history and today? Finally, what will be the impact of planned structural reforms on potential output growth among the world’s larger EMEs? These are some of the questions considered by the authors.
Foreign investment is often constrained by two forms of political risk: expropriation and corruption. We examine the role of government corruption in foreign direct investment (FDI) when contracts are not fully transparent and investors face the threat of expropriation.