Advanced Search
MyIDEAS: Login to save this paper or follow this series

Fire-Sale FDI? The Impact of Financial Crisis on Foreign Direct Investment

Contents:

Author Info

  • Olga Bogach

    ()
    (Department of Economics, University of Hawaii at Manoa)

  • Ilan Noy

    ()
    (Department of Economics, University of Hawaii at Manoa)

Abstract

In this paper, we analyze the evolution of foreign direct investment (FDI) inflows to developing and emerging countries around financial crises. We empirically and thoroughly 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 different motivations for FDI—horizontal (tariff jumping) and vertical (integrating production stages). 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 adversely.

Download Info

If 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.
File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_12-5.pdf
File Function: First version, 2012
Download Restriction: no

Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201205.

as in new window
Length: 35 pages
Date of creation: 21 Mar 2012
Date of revision:
Handle: RePEc:hai:wpaper:201205

Contact details of provider:
Postal: 2424 Maile Way, Honolulu, HI 96822
Phone: (808)956-8730
Fax: (808)956-4347
Email:
Web page: http://www.economics.hawaii.edu/
More information through EDIRC

Order Information:
Email:
Web: http://www.economics.hawaii.edu/research/working.html

Related research

Keywords: International investment; Foreign direct investment (FDI); Financial crises; Mergers and Acquisitions; Multinational firms;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Joshua Aizenman & Nancy Marion, 2001. "The Merits of Horizontal versus Vertical FDI in the Presence of Uncertainty," NBER Working Papers 8631, National Bureau of Economic Research, Inc.
  2. Dell''Ariccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram G, 2005. "The Real Effect of Banking Crises," CEPR Discussion Papers 5088, C.E.P.R. Discussion Papers.
  3. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises," IMF Working Papers 10/146, International Monetary Fund.
  4. Flood, Robert P & Garber, Peter M, 1991. "The Linkage between Speculative Attack and Target Zone Models of Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1367-72, November.
  5. Rose, Andrew K., 2005. "One reason countries pay their debts: renegotiation and international trade," Journal of Development Economics, Elsevier, vol. 77(1), pages 189-206, June.
  6. Head, Keith & Mayer, Thierry & Ries, John, 2010. "The erosion of colonial trade linkages after independence," Journal of International Economics, Elsevier, vol. 81(1), pages 1-14, May.
  7. Michael Hutchison & Ilan Noy (Neuberger), 2002. "Sudden stops and the Mexican wave: currency crises, capital flow reversals and output loss in emerging markets," Pacific Basin Working Paper Series 2002-03, Federal Reserve Bank of San Francisco.
  8. Drazen, Allan & Masson, Paul R, 1994. "Credibility of Policies versus Credibility of Policymakers," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 735-54, August.
  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  10. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810, July.
  11. Acharya, Viral V & Shin, Hyun Song & Yorulmazer, Tanju, 2007. "Fire-sale FDI," CEPR Discussion Papers 6319, C.E.P.R. Discussion Papers.
  12. Robert J. Barro & Jong-Wha Lee, 2010. "A New Data Set of Educational Attainment in the World, 1950–2010," NBER Working Papers 15902, National Bureau of Economic Research, Inc.
  13. Miao Wang & M. C. Sunny Wong, 2009. "What Drives Economic Growth? The Case of Cross-Border M&A and Greenfield FDI Activities," Kyklos, Wiley Blackwell, vol. 62(2), pages 316-330, 04.
  14. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
  15. Roberto Chang & Andrés Velasco, 2001. "A Model Of Financial Crises In Emerging Markets," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 489-517, May.
  16. Michael D. Bordo & John S. Landon-Lane, 2010. "The Global Financial Crisis of 2007-08: Is it Unprecedented?," NBER Working Papers 16589, National Bureau of Economic Research, Inc.
  17. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
  18. Cesar Calderon & Tatiana Didier, 2009. "Will FDI be Resilient in this Crisis?," World Bank Other Operational Studies 11000, The World Bank.
  19. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," NBER Working Papers 10378, National Bureau of Economic Research, Inc.
  20. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
  21. Christophe Chamley, 2003. "Dynamic Speculative Attacks," American Economic Review, American Economic Association, vol. 93(3), pages 603-621, June.
  22. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
  23. Bruce A. Blonigen & Jeremy Piger, 2011. "Determinants of Foreign Direct Investment," NBER Working Papers 16704, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Burger, Martijn J. & Ianchovichina, Elena I., 2014. "Surges and stops in FDI flows to developing countries : does the mode of entry make a difference ?," Policy Research Working Paper Series 6771, The World Bank.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hai:wpaper:201205. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Web Technician).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.