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 languageEnglish
JournalScandinavian Journal of Economics
DOIs
Publication statusAccepted/In press - 9 Dec 2015

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Keywords

  • banking crisis
  • credit crisis
  • credit constraints
  • financial development
  • global finanical crisis

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