Foreign Direct Investment and External Financing Conditions: Evidence from Normal and Crisis Times

38 Pages Posted: 31 Oct 2017

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 2017

Abstract

In this paper, we investigate 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 the financial development of the source and destination countries has a strong positive impact on the relative volume of FDI in financially vulnerable sectors in normal times. However, 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.

Keywords: Banking crisis, credit constraints, credit crisis, financial development, foreign direct investment, global financial crisis

JEL Classification: F23, O16

Suggested Citation

Desbordes, Rodolphe and Wei, Shang-Jin, Foreign Direct Investment and External Financing Conditions: Evidence from Normal and Crisis Times (October 2017). The Scandinavian Journal of Economics, Vol. 119, Issue 4, pp. 1129-1166, 2017, Available at SSRN: https://ssrn.com/abstract=3062305 or http://dx.doi.org/10.1111/sjoe.12192

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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