25
Mar
Conventional wisdom on capital flows holds that foreign direct investment is for the long-term, while securities and other flows may be more volatile. However, as Olivier Blanchard and Julien Acalin showed, a large proportion of measured foreign direct investment can be flows going in and out of a country on their way to a final destination. What explains this? The answer is special purpose entities (SPEs).
SPEs are legal entities set up to obtain specific advantages from a host economy, in...