Financial Frictions, Foreign Direct Investment, and Growth
AbstractThis paper assesses the role of financial frictions and Foreign Direct Investment (FDI) on an economy´s growth rate, business cycle volatility, and firm´s capital structure. We gauge these effects within the Financial Accelerator framework, where entrepreneurs can establish affiliates of local firms abroad through Foreign Direct Investment. Model simulations suggest that in the presence of credit market imperfections FDI is associated with faster growth, less leverage, and lower aggregate volatility. These features are consistent with the macroeconomic dynamics of the more globally integrated economies over the last three decades.
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Bibliographic InfoPaper provided by FIW in its series FIW Working Paper series with number 041.
Date of creation: Jan 2010
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Postal: FIW Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna
Find related papers by JEL classification:
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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