Dynamic Effects of Foreign Direct Investment When Credit Markets are Imperfect
AbstractThis paper argues that foreign direct investment in economies with credit market imperfections may increase their vulnerability to capital flow shocks. Due to better access to financial markets foreign firms can use other wage contracts than domestic ones. This alters the domestic wage composition and the subsequent wealth distribution. When credit markets are imperfect, the wealth distribution typically determines an economy's growth potential in autarky; hence, high exposure to foreign direct investment may significantly impede the capability to recover from sudden withdrawals of foreign capital. This is substantiated by empirical evidence on durations of output recovery after systemic sudden stops. --
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Bibliographic InfoPaper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Hannover 2010 with number 5.
Date of creation: 2010
Date of revision:
Credit market imperfections; foreign direct investment; growth; occupational choice; sudden stops;
Other versions of this item:
- Thomas Gall & Marc Schiffbauer & Julia Kubny, 2009. "Dynamic Effects of Foreign Direct Investment When Credit Markets are Imperfect," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-188, Boston University - Department of Economics.
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-25 (All new papers)
- NEP-DEV-2010-09-25 (Development)
- NEP-IFN-2010-09-25 (International Finance)
- NEP-OPM-2010-09-25 (Open Economy 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.:
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Vlerick Leuven Gent Management School Working Paper Series
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- 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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