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Investment Behaviour of Financially Constrained Multinational

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  • Diemo Dietrich

    (Halle Institute for Economic Research)

Abstract

The paper investigates the investment decision of a financially constrained multinational corporation (MNC) planning investment projects both at home and in a developing country. The collateral values of the projects diverge because of country specific transactions costs so that the willingness of banks to grant a loan depends not only on the MNC's financial wealth but also on the share of FDI in total investment. It is shown that i) variations in the MNC's financial standing affects FDI stronger than domestic investment, ii) FDI is likely to decrease following a macroeconomic shock to the MNC parent, and iii) domestic investment is likely to increase following a macroeconomic shock to the MNC affiliate.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0309008.

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Date of creation: 05 Sep 2003
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Handle: RePEc:wpa:wuwpma:0309008

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Keywords: multinational corporation; foreign direct investment; international business cycle;

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  28. repec:fth:calaec:16-92 is not listed on IDEAS
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Citations

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Cited by:
  1. Diemo Dietrich & Tobias Knedlik & Axel Lindner, 2011. "Central and Eastern European countries in the global financial crisis: a typical twin crisis?," Post-Communist Economies, Taylor & Francis Journals, vol. 23(4), pages 415-432, April.
  2. Buch, Claudia M. & Lipponer, Alexander, 2005. "Business cycles and FDI: evidence from German sectoral data," Discussion Paper Series 1: Economic Studies 2005,09, Deutsche Bundesbank, Research Centre.
  3. Holger Zemanek, 2004. "Investitions- und Finanzierungsverhalten Multinationaler Unternehmen," IWH Discussion Papers 197, Halle Institute for Economic Research.
  4. Dietrich, Diemo & Jindra, Björn, 2010. "Corporate governance in the multinational enterprise: A financial contracting perspective," International Business Review, Elsevier, vol. 19(5), pages 446-456, October.

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