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Fire-Sale FDI? The impact of financial crises on foreign direct investment

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  • Bogach, Olga
  • Noy, Ilan

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.

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File URL: http://researcharchive.vuw.ac.nz/handle/10063/2089
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Bibliographic Info

Paper provided by Victoria University of Wellington, School of Economics and Finance in its series Working Paper Series with number 2089.

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Date of creation: 2012
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Handle: RePEc:vuw:vuwecf:2089

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Postal: Alice Fong, Administrator, School of Economics and Finance, Victoria Business School, Victoria University of Wellington, PO Box 600 Wellington, New Zealand
Phone: +64 (4) 463-5353
Fax: +64 (4) 463-5014
Email:
Web page: http://www.victoria.ac.nz/sef
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Keywords: International investment; Foreign direct investment (FDI); Financial crises; Mergers and Acquisitions; Multinational firms;

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References

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  1. 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.
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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.

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