Cross-Country Evidence on the Link between the Level of Infrastructure and Capital Inflows



exists. Only trade openness enters individually significantly.

The findings for the average stock of foreign capital liabilities and its sub-components can
be summarised as follows. Considering the infrastructure variables separately, roads do not
seem to contribute to the attraction of new international capital. By contrast air-departures
and international telephone circuits have a positive and statistically signi
ficant relationship with
the average total liability stock for the period 1990-95. Air-departures also show a positive and
statistically signi
ficant influence on FDI, while international telephone circuits have a positive
impact on the attraction of new debt. Overall, the joint impact of the chosen infrastructure
variables on the stock of capital in
flows is not statistically significant. An exception is provided
by the sub-component on FDI. Here a statistical signi
ficant impact of infrastructure on new FDI
is found.

3.3.2 1990-95 Cross-Section Analysis of the Flow Data

The analysis of the average capital flows illuminates interesting effects on FDI flows. All infras-
tructure variables enter with a positive sign into the bivariate speci
fication of FDI flows in Table
8. However, as seen above for the stock of FDI, only air-departures are statistically signi
ficant at
the one percent level (column (1)). A 2.5 percentage point increase in the level of air-departures
raises the average in
flow of FDI liabilities by 0.1 percentage point. Note that 33 percent of the
cross-country variations in FDI
flows are explained by this variable. The result remains valid
when country differences, depicted in columns (4) to (6), are controlled for. However, the inclu-
sion of the remaining regressors in columns (7) to (9) wipes out the individual signi
ficance of the
air-departure variable and leaves the other infrastructure variables unchanged. In all three spec-
i
fications of columns (7) to (9) trade openness has a negative and statistically significant impact
on the speci
fications. The same is true for natural resources in columns (8) and (9). In these
columns the dummy variable concerning being landlocked also enters individually signi
ficantly
and with the expected negative sign. The results are similar to the ones obtained for the stock of
FDI. Interestingly, looking at the joint in
fluence of infrastructure in column (10), an individually
signi
ficant relationship of air-departures and international telephone circuits is found. While the
former reveals a positive sign, the latter is negative. A test for the joint signi
ficance of the three
infrastructure variables has a p-value of 0.001. The variables are jointly highly signi
ficant. The
individual impact of openness and natural resources remains stable. Overall, for the
flow data
joint signi
ficance of the infrastructure variables is found for FDI flows. An individually positive
relationship exists for air-departures and FDI in
flows, as documented above.

11



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