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Pecking Order of Cross-Border Investment
Is there a pecking order of cross-border investment in that countries become financially integrated primarily through some types of investment rather than others? Using a novel database of bilateral capital stocks for all types of investment – FDI, portfolio equity securities, debt securities as well as loans – for a broad set of 77 countries, the authors show that such a pecking order indeed exists. The paper focuses on two key determinants of this pecking order: information frictions and the quality of host country institutions.