Financing FDI into Developing Economies and the International Transmission of Business Cycle Fluctuations

Swiss Journal of Economics and Statistics, Vol. 140, No. 4, pp. 449-481, 2004

Posted: 13 Apr 2007

See all articles by Diemo Dietrich

Diemo Dietrich

Newcastle University Business School

Abstract

We consider a financially constrained multinational corporation with investment projects in both an industrial and a developing country. Since the collateral values of the projects' tangible assets diverge, the willingness of banks to grant a loan depends not only on the firm's financial wealth but also on the share of FDI in total investment. We investigate the impact of variations in wealth and of country-specific macroeconomic shocks on the firm's investment decision. The results are twofold. First, decreasing wealth affects both foreign and domestic investment but the effect on foreign investment tends to be stronger. Second, country-specific macroeconomic shocks have asymmetric effects on investment depending on where the shock occurs.

Keywords: multinational corporations, foreign direct investment, financial constraints, investment fluctuations

JEL Classification: D82, F23, G15

Suggested Citation

Dietrich, Diemo, Financing FDI into Developing Economies and the International Transmission of Business Cycle Fluctuations. Swiss Journal of Economics and Statistics, Vol. 140, No. 4, pp. 449-481, 2004, Available at SSRN: https://ssrn.com/abstract=979684

Diemo Dietrich (Contact Author)

Newcastle University Business School ( email )

5 Barrack Road
Newcastle-upon-Tyne NE1 7RU, NE1 4SE
United Kingdom

HOME PAGE: http://www.ncl.ac.uk/business-school/staff/profile/diemodietrich.html

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
419
PlumX Metrics