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The (Non-)Resiliency of Foreign Direct Investment in the United States During the 2007-2009 Financial Crisis


Silvio Contessi


Federal Reserve Bank of St. Louis

Pierangelo De Pace


Pomona College - Department of Economics

December 30, 2011

Federal Reserve Bank of St. Louis Working Paper No. 2011-037B

Abstract:     
We study the contraction of foreign direct investment (FDI) flows in the United States during the recent financial crisis and show their unusual non-resiliency, which depends in part on the global nature of the economic recession, but also on the increases in the cost of financing FDI in the economies in which the flows originate. To formally study the effects of external financial conditions on FDI in the United States, we exploit the three dimensions of a panel of U.S. inward FDI flows organized by recipient U.S. industries, source countries, and years for the recorded flows. Changes in the cost of finance in the source countries have little or no effect on total inward flows (the sum of equity, debt, and reinvested earnings) over the 2006-2010 period. However, U.S. industries characterized by more financial vulnerability experience statistically significant variations in the debt and equity components of inward FDI flows in response to the changes in the cost of capital that occurred in the source countries during the crisis.

Number of Pages in PDF File: 30

Keywords: Capital Flows, Financial Crisis, FDI, Cost of Finance

JEL Classification: F21, F23, F32, F36, G01

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Date posted: April 12, 2012  

Suggested Citation

Contessi, Silvio and De Pace, Pierangelo, The (Non-)Resiliency of Foreign Direct Investment in the United States During the 2007-2009 Financial Crisis (December 30, 2011). Federal Reserve Bank of St. Louis Working Paper No. 2011-037B. Available at SSRN: http://ssrn.com/abstract=2038606 or http://dx.doi.org/10.2139/ssrn.2038606

Contact Information

Silvio Contessi (Contact Author)
Federal Reserve Bank of St. Louis ( email )
411 Locust St
Saint Louis, MO 63011
United States
Pierangelo De Pace
Pomona College - Department of Economics ( email )
425 N College Avenue
Carnegie Building, Room 205
Claremont, CA 91711
United States
+19096218744 (Phone)
HOME PAGE: http://sites.google.com/site/pierangelodepace/
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