Foreign Direct Investment And Structural Reforms: Evidence From Eastern Europe And Latin America

This paper presents a general approximation method for characterizing time-varying equilibrium portfolios in a two-country dynamic general equilibrium model. The method can be easily adapted to most dynamic general equilibrium models, it applies to environments in which markets are complete or incomplete, and it can be used for models of any dimension. Moreover, the approximation provides simple, easily interpretable closed form solutions for the dynamics of equilibrium portfolios. The process of financial globalization has led to an unprecedented increase in the size and complexity of gross financial positions and gross financial flows among countries.