Credit Conditions and Foreign Direct Investment During the Global Financial Crisis

Rodolphe Desbordes, Shang-Jin Wei

Research output: Working paper

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Abstract

This paper investigates the effect that tight credit conditions had on outward foreign direct investment flows during the 2008-2010 global financial crisis. A difference-in-differences approach is used to isolate a "credit channel" impact of the global financial crisis on foreign direct investment. The global financial crisis had a stronger negative impact on the relative volume of outward foreign direct investment in financially vulnerable sectors in more financially developed countries, especially if these countries also experienced a banking crisis. These results suggest that lack of access to external finance can partly explain the drop in foreign direct investment during the global financial crisis.
Original languageEnglish
Number of pages27
Volume7063
Publication statusPublished - 1 Oct 2014

Publication series

NameWorld Bank Policy Research Working Paper
PublisherWorld Bank

Keywords

  • banking crisis
  • credit constraints
  • financial development
  • foreign direct investment
  • global financial crisis

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    Desbordes, R., & Wei, S-J. (2014). Credit Conditions and Foreign Direct Investment During the Global Financial Crisis. (World Bank Policy Research Working Paper).