Dynamic Effects of Foreign Direct Investment When Credit Markets are Imperfect
AbstractThis paper argues that foreign direct investment in economies with credit market imperfections may increase their vulnerability to capital flow shocks. Due to better access to financial markets foreign firms can use different wage contracts than domestic ones. This alters the domestic wage composition and the subsequent wealth distribution. Under credit market imperfections the wealth distribution typically determines an economy’s growth potential in autarky; hence high exposure to foreign direct investment may substantially impede the capability to recover from sudden withdrawals of foreign capital. This is substantiated by empirical evidence on durations of output recovery after systemic sudden stops.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-188.
Date of creation: Apr 2009
Date of revision:
Credit market imperfections; foreign direct investment; growth; occupational choice; sudden stops;
Other versions of this item:
- Gall, Thomas & Schiffbauer, Marc & Kubny, Julia, 2010. "Dynamic Effects of Foreign Direct Investment When Credit Markets are Imperfect," Proceedings of the German Development Economics Conference, Hannover 2010 5, Verein für Socialpolitik, Research Committee Development Economics.
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-10 (All new papers)
- NEP-BEC-2009-06-10 (Business Economics)
- NEP-FDG-2009-06-10 (Financial Development & Growth)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reis, Ana Balcao, 2006. "Welfare, taxes and foreign investment," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1045-1061, June.
- David Mayer-Foulkes & Peter Nunnenkamp, 2005.
"Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI,"
Kiel Working Papers
1242, Kiel Institute for the World Economy.
- David Mayer-Foulkes & Peter Nunnenkamp, 2005. "Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI," DEGIT Conference Papers c010_045, DEGIT, Dynamics, Economic Growth, and International Trade.
- Koen De Backer & Leo Sleuwaegen, 2002.
"Does foreign direct investment crowd out domestic entrepreneurship?,"
Vlerick Leuven Gent Management School Working Paper Series
2002-14, Vlerick Leuven Gent Management School.
- Koen De Backer & Leo Sleuwaegen, 2003. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Review of Industrial Organization, Springer, vol. 22(1), pages 67-84, February.
- Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, Department of Economics, University of Kent.
- Duong, Tran Lam Anh, 2013. "An Analysis of Changes in Wealth Distribution upon the Entrance of Foreign Direct Investment Firms," Discussion Papers 2013-09, Graduate School of Economics, Hitotsubashi University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Sullivan).
If references are entirely missing, you can add them using this form.