Financial Crises and Bilateral Foreign Direct Investment Flows
AbstractDespite impressive studies on financial crises consequences and foreign capital flows, by large the research done has examined these economic phenomenons separately without addressing their nexus. This paper aims at bridging this gap by examining the impact of financial crises on bilateral foreign direct investment (BFDI). Financial turmoil reshapes the perception and magnitude of BFDI flows in both host and home countries; host countries governments see in FDI a mean for overcoming the sluggish economic situation and hence become eager to stimulate FDI inflows, while for the same reasons home countries governments, and investors become more cautious about their decisions to invest abroad. This paper addresses in particular the impact of financial crises on FDI in both host and home countries. To that end the paper uses a panel data covering the period 1985-2008 on home countries, as presented by the six largest FDI outflow, and 42 host countries. Empirical analysis applies the system GMM estimator to a gravity model of BFDI flows. The key findings in this paper are that financial crises exerts a negative impact on BFDI, a generalized fact that applies to all financial disturbances that took place during the last 23 years. Second the magnitude of the negative shock of financial crises on FDI differs by type and origins causing the financial crises.
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 University Library of Munich, Germany in its series MPRA Paper with number 30417.
Date of creation: 16 Jan 2011
Date of revision:
Foreign direct investment; financial crisis; Bilateral Foreign direct investment; dynamic panel data; spatial dependence.;
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-05-07 (Accounting & Auditing)
- NEP-ALL-2011-05-07 (All new papers)
- NEP-MAC-2011-05-07 (Macroeconomics)
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.:
- Piyush Tiwari & Indra Syamwil & Masayuki Doi, 2003.
"Spatial pattern of Japanese manufacturing industry in four ASEAN countries,"
Economics of Governance,
Springer, vol. 82(3), pages 403-415, September.
- Piyush Tiwari & Indra Syamwil & Masayuki Doi, 2003. "Spatial pattern of Japanese manufacturing industry in four ASEAN countries," Papers in Regional Science, Springer, Springer, vol. 82(3), pages 403-415, September.
- Richard Blundell & Steve Bond, 1995.
"Initial conditions and moment restrictions in dynamic panel data models,"
IFS Working Papers, Institute for Fiscal Studies
W95/17, Institute for Fiscal Studies.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 115-143, August.
- R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D., 2004. "Economic and Geographical Distance: Explaining Mercosur Sectoral Exports to the EU," Open Economies Review, Springer, vol. 15(3), pages 291-314, 07.
- Paul Brenton & Francesca Di Mauro & Matthias LÃ¼cke, 1999.
"Economic Integration and FDI: An Empirical Analysis of Foreign Investment in the EU and in Central and Eastern Europe,"
Springer, vol. 26(2), pages 95-121, June.
- Brenton, Paul & DiMauro, Francesca & Lücke, Matthias, 1998. "Economic integration and FDI: an empirical analysis of foreign investment in the EU and in Central and Eastern Europe," Kiel Working Papers 890, Kiel Institute for the World Economy.
- Cletus C. Coughlin & Eran Segev, 1999.
"Foreign direct investment in China: a spatial econometric study,"
1999-001, Federal Reserve Bank of St. Louis.
- Cletus C. Coughlin & Eran Segev, 2000. "Foreign Direct Investment in China: A Spatial Econometric Study," The World Economy, Wiley Blackwell, vol. 23(1), pages 1-23, 01.
- L.R. de Mello Jr., 1996.
"Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data,"
Studies in Economics, Department of Economics, University of Kent
9615, Department of Economics, University of Kent.
- de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-51, January.
- Dees, Stephane, 1998.
" Foreign Direct Investment in China: Determinants and Effects,"
Economic Change and Restructuring,
Springer, vol. 31(2-3), pages 175-94.
- Stèphane Dees, 1998. "Foreign Direct Investment in China: Determinants and Effects," Economic Change and Restructuring, Springer, vol. 31(2), pages 175-194, May.
- Peter Egger & Michael Pfaffermayr, 2001.
"Distance, Trade and FDI: A Hausman-Taylor SUR Approach,"
WIFO Working Papers, WIFO
- Peter Egger & Michael Pfaffermayr, 2004. "Distance, trade and FDI: a Hausman-Taylor SUR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(2), pages 227-246.
- Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December.
- Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
- Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
- Stein, Ernesto & Daude, Christian, 2007. "Longitude matters: Time zones and the location of foreign direct investment," Journal of International Economics, Elsevier, vol. 71(1), pages 96-112, March.
- Nicole Madariaga & Sandra Poncet, 2007.
"FDI in Chinese Cities: Spillovers and Impact on Growth,"
The World Economy,
Wiley Blackwell, vol. 30(5), pages 837-862, 05.
- Nicole Madariaga & Sandra Poncet, 2006. "FDI in Chinese Cities: Spillovers and Impact on Growth," Working Papers 2006-22, CEPII research center.
- Robert Grosse & Len J Trevino, 1996. "Foreign Direct Investment in the United States: An Analysis by Country of Origin," Journal of International Business Studies, Palgrave Macmillan, vol. 27(1), pages 139-155, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.