The value of waiting: Russia's integration into the international capital markets

Capital flight has characterized Russia's integration into international ca pital markets. Inflows of foreign direct investment have been minor and pre ceded by temporary inflows of portfolio capital. The paper shows that uncer tainty about macroeconomic stabilization exerts a strong negative effect on the volume of capital inflows when investment decisions ate irreversible. Reducing uncertainty may, but need not necessarily, lead to more investment if institutional reforms fail to lower the degree of irreversibility. Sinc e monetary stabilization policies have not been accompanied by comprehensiv e institutional reforms, private capital flows in Russia have remained low and foreign direct investment has been particularly harmed. (C) 1999 Academ ic Press.