Foreign direct investment and external financing conditions: evidence from normal and crisis times

Rodolphe Desbordes; Shang-Jin Wei

doi:10.1111/sjoe.12192

Foreign direct investment and external financing conditions: evidence from normal and crisis times

Rodolphe Desbordes, Shang-Jin Wei

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Abstract

This paper investigates the effects that external financing conditions in source and destination countries have on foreign direct investment (FDI) in normal and crisis times, using a difference-in- differences approach. We find that source and destination countries’ financial development have a strong positive impact on the relative volume of FDI in financially vulnerable sectors in normal times. On the other hand, during the 2008-2010 global financial crisis, the relative volume of FDI in financially vulnerable sectors fell relatively more in financially developed source and destination countries, most notably if these countries experienced a credit crisis.

Original language	English
Pages (from-to)	1129-1166
Number of pages	38
Journal	Scandinavian Journal of Economics
Early online date	13 Jun 2016
DOIs	https://doi.org/10.1111/sjoe.12192
Publication status	Published - Oct 2017

Keywords

banking crisis
credit crisis
credit constraints
financial development
global finanical crisis

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1111/sjoe.12192

Desbordes-Wei-SJE-2016-Foreign-direct-investment-and-external-financing-conditionsAccepted author manuscript, 178 KB

Cite this

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title = "Foreign direct investment and external financing conditions: evidence from normal and crisis times",

abstract = "This paper investigates the effects that external financing conditions in source and destination countries have on foreign direct investment (FDI) in normal and crisis times, using a difference-in- differences approach. We find that source and destination countries{\textquoteright} financial development have a strong positive impact on the relative volume of FDI in financially vulnerable sectors in normal times. On the other hand, during the 2008-2010 global financial crisis, the relative volume of FDI in financially vulnerable sectors fell relatively more in financially developed source and destination countries, most notably if these countries experienced a credit crisis.",

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N2 - This paper investigates the effects that external financing conditions in source and destination countries have on foreign direct investment (FDI) in normal and crisis times, using a difference-in- differences approach. We find that source and destination countries’ financial development have a strong positive impact on the relative volume of FDI in financially vulnerable sectors in normal times. On the other hand, during the 2008-2010 global financial crisis, the relative volume of FDI in financially vulnerable sectors fell relatively more in financially developed source and destination countries, most notably if these countries experienced a credit crisis.

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KW - credit crisis

KW - credit constraints

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KW - global finanical crisis

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Foreign direct investment and external financing conditions: evidence from normal and crisis times

Abstract

Keywords

UN SDGs

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