Evidence on international capital flows suggests that foreign direct investment (FDI) is less volatile than other financial flows. To explain this finding, we model international capital flows under the assumptions of imperfect enforcement of contracts and inalienability of FDI. Imperfect enforcement of contracts leads to endogenous financing constraints and the pricing of default risk. Inalienability implies that it is not as advantageous to expropriate FDI relative to other flows. These features combine to give a risk sharing advantage of FDI over other capital flows. This risk sharing advantage translates into a lower default premium on FDI and a smaller response to changes in a country's financing constraint. The model produces the new implication that financially constrained countries borrow relatively more through FDI. Using several creditworthiness and country risk ratings to measure financial constraints we present supporting evidence of the model.