Credit Conditions and Foreign Direct Investment During the Global Financial Crisis

27 Pages Posted: 20 Apr 2016

See all articles by Rodolphe Desbordes

Rodolphe Desbordes

SKEMA Business School

Shang-Jin Wei

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: October 1, 2014

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.

Keywords: Private Sector Economics, Marketing, Private Sector Development Law

Suggested Citation

Desbordes, Rodolphe and Wei, Shang-Jin, Credit Conditions and Foreign Direct Investment During the Global Financial Crisis (October 1, 2014). World Bank Policy Research Working Paper No. 7063, Available at SSRN: https://ssrn.com/abstract=2513119

Rodolphe Desbordes (Contact Author)

SKEMA Business School ( email )

Lille
France

Shang-Jin Wei

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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