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Financial frictions and foreign direct investment: Evidence from Japanese microdata

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  • Raff, Horst
  • Ryan, Michael
  • Stähler, Frank

Abstract

Using Japanese microdata for the period 1980 to 2000 we find evidence for two transmission channels from financial shocks to foreign direct investment: a collateral channel, whereby changes in the value of investors' landholdings affect their borrowing ability; and a lending channel, whereby changes in bank health affect banks' lending ability. Decreasing land values by 55% on average from their peak in 1990 to the sample mean reduces the predicted number of investments by 17%. Reducing banks' market-to-book ratios by an average 61% from their high in 1986 to the sample mean lowers predicted investment counts by 21%.

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  • Raff, Horst & Ryan, Michael & Stähler, Frank, 2018. "Financial frictions and foreign direct investment: Evidence from Japanese microdata," Journal of International Economics, Elsevier, vol. 112(C), pages 109-122.
    • Handle: RePEc:eee:inecon:v:112:y:2018:i:c:p:109-122
    DOI: 10.1016/j.jinteco.2018.02.006
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    More about this item

    Keywords

    Foreign direct investment; Multinational enterprise; Credit rationing; Collateral; Bank health; Japan;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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