Fire‐Sale FDI? The Impact of Financial Crises on Foreign Direct Investment

13 Pages Posted: 20 Apr 2015

See all articles by Olga Stoddard

Olga Stoddard

Brigham Young University

Ilan Noy

Victoria University of Wellington

Date Written: May 2015

Abstract

We analyze the evolution of foreign direct investment (FDI) inflows to developing and emerging countries around financial crises. We empirically examine the Fire‐Sale FDI hypothesis and describe the pattern of FDI inflows surrounding financial crises. We also add a more granular detail about the types of financial crises and their potentially differential effects on FDI. We distinguish between mergers and acquisitions (M&A) and greenfield investment, as well as between horizontal (tariff jumping) and vertical (integrating production stages) FDI. We find that financial crises have a strong negative effect on inward FDI in our sample. Crises are also shown to reduce the value of horizontal and vertical FDI. We do not find empirical evidence of fire‐sale FDI; on the contrary, financial crises are shown to affect FDI flows and M&A activity negatively.

Suggested Citation

Stoddard, Olga and Noy, Ilan, Fire‐Sale FDI? The Impact of Financial Crises on Foreign Direct Investment (May 2015). Review of Development Economics, Vol. 19, Issue 2, pp. 387-399, 2015, Available at SSRN: https://ssrn.com/abstract=2595892 or http://dx.doi.org/10.1111/rode.12149

Olga Stoddard (Contact Author)

Brigham Young University ( email )

Provo, UT 84602
United States

Ilan Noy

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

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