We analyze the effect of fiscal policy of open economies, and examine the effect of fiscal policy on domestic corporate investment. Capital flows are important factors in determining the effect of fiscal policies in a small open economy. Fiscal expansion which tries to boost overall demand could, in principle, be restricted by various factors. So-called crowding-out could reduce the effectiveness of fiscal expansions, and thus lower the fiscal multiplier. Capital flows could play an important role in determining the effects as it determines how the revenues for fiscal expansion are financed. Here, we examine the magnitude of the fiscal multipliers with different states of capital flows. Through the structural vector auto regression (SVAR) model using the sign restriction on national panel data from 42 countries, we find that fiscal multiplier is higher when capital inflows and lower when it outflows. And the responsiveness of different states of capital flows are more notable in investment than in consumption, the other component of GDP accounts.

In the second part of the paper, we further examine the corporate investment of Korea. If the crowding-out prevails, fiscal expansions could lower the overall investment. Increased supply of government bonds will substitute corporate bonds in the loanable funds market. However, if it could partially be off-set if firms could fund their investment from international investors. That is, if individual firms could finance their investment from external funds, it could unwind the crowding-out of the fiscal expansions. We analyze Korean firm level data from 2005 to 2020, and confirm that with fiscal expansions, investment ratio decreased especially in companies with high debt-to-equity ratio. However, those negative correlation is not observed in a sample of companies which hold foreign debts or have foreign main banks.

Preface
Executive Summary

Chapter 1 Introduction
　Section 1 Overview
　Section 2 Review of Existing Literature

Chapter 2 Effects of Fiscal Policy in Open Economies
　Section 1 Recursive Vector Auto-Regression (VAR) Model
　Section 2 Sign-Restriction Structural Vector Auto-Regression (SVAR) Model

Chapter 3 Impact of Fiscal Expenditure on Corporate Investment
　Section 1 Effects of Fiscal Expenditure on Corporate Investment
　Section 2 Empirical Analysis Results
　Section 3 Policy Implications

Chapter 4 Conclusion

References
Appendix
ABSTRACT