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The effect of the great recession on foreign direct investment: global empirical evidence with a gravity approach

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  • Salvador Gil-Pareja
  • Rafael-Llorca Vivero
  • Jordi Paniagua

Abstract

This article estimates the effect of the present global systemic banking crisis on foreign direct investment (FDI) using the gravity equation on a sample of 161 countries over the period 2003 to 2010. Systemic banking crises, through demand shocks and credit constraints, may impact FDI in two ways: aggregate monetary flows and individual projects count. Since gravity equations account for output variations, our research relies on the financial constraints channel. We find that the great recession, through credit constraints on home supply markets, has reduced the number of FDI projects, but not their size, forcing investors to become more selective on their international endeavours.

Suggested Citation

  • Salvador Gil-Pareja & Rafael-Llorca Vivero & Jordi Paniagua, 2013. "The effect of the great recession on foreign direct investment: global empirical evidence with a gravity approach," Applied Economics Letters, Taylor & Francis Journals, vol. 20(13), pages 1244-1248, September.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:13:p:1244-1248
    DOI: 10.1080/13504851.2013.802082
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    Cited by:

    1. Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Headquarters intangible capital and FDI," Working Papers 2107, Department of Applied Economics II, Universidad de Valencia.
    2. Andrew Myburgh & Jordi Paniagua, 2016. "Does International Commercial Arbitration Promote Foreign Direct Investment?," Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 597-627.
    3. Maximilian Buchholz & Harald Bathelt & John A. Cantwell, 0. "Income divergence and global connectivity of U.S. urban regions," Journal of International Business Policy, Palgrave Macmillan, vol. 0, pages 1-20.
    4. Wooster, Rossitza B. & Paul, Donna L., 2016. "Leadership positioning among U.S. firms investing in China," International Business Review, Elsevier, vol. 25(1), pages 319-332.
    5. Jordi Paniagua, 2015. "A gravity model for foreign re-investment," Economics Bulletin, AccessEcon, vol. 35(1), pages 627-632.
    6. Paniagua, Jordi & Sapena, Juan, 2014. "Is FDI doing good? A golden rule for FDI ethics," Journal of Business Research, Elsevier, vol. 67(5), pages 807-812.
    7. Adolfo Maza & Paula Gutiérrez‐Portilla & José Villaverde, 2020. "On the drivers of UK direct investment in the Spanish regions: A spatial Durbin approach," Growth and Change, Wiley Blackwell, vol. 51(2), pages 646-675, June.
    8. Maria Teresa Costa-Campi & Jordi Paniagua & Elisa Trujillo-Baute, 2015. "Are energy market integrations a green light for FDI?," Working Papers 2015/18, Institut d'Economia de Barcelona (IEB).
    9. Valeriano Martínez-San Román & Marta Bengoa & Blanca Sánchez-Robles, 2016. "Foreign direct investment, trade integration and the home bias: evidence from the European Union," Empirical Economics, Springer, vol. 50(1), pages 197-229, February.
    10. Aparicio-Pérez Daniel & Calatayud Carolina & Rochina-Barrachina María E., 2021. "The Export Strategy and SMEs Employment Resilience During Slump Periods," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 15(1), pages 163-186, January.
    11. Salvador Gil‐Pareja & Rafael Llorca‐Vivero & Jordi Paniagua, 2022. "Regional headquarters and foreign direct investment," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1288-1310, September.
    12. Cuadros, Ana & Martín-Montaner, Joan & Paniagua, Jordi, 2016. "Homeward bound FDI: Are migrants a bridge over troubled finance?," Economic Modelling, Elsevier, vol. 58(C), pages 454-465.
    13. Paniagua, Jordi & Korzynski, Pawel & Mas-Tur, Alicia, 2017. "Crossing borders with social media: Online social networks and FDI," European Management Journal, Elsevier, vol. 35(3), pages 314-326.
    14. Farris, Jarrad & Morgan, Stephen & Johnson, Michael E., 2022. "COVID-19 Working Paper: The COVID-19 Pandemic and Changes in Greenfield Foreign Direct Investment in Africa," USDA Miscellaneous 329078, United States Department of Agriculture.
    15. Paniagua, Jordi & Figueiredo, Erik & Sapena, Juan, 2015. "Quantile regression for the FDI gravity equation," Journal of Business Research, Elsevier, vol. 68(7), pages 1512-1518.
    16. Maximilian Buchholz & Harald Bathelt & John A. Cantwell, 2020. "Income divergence and global connectivity of U.S. urban regions," Journal of International Business Policy, Palgrave Macmillan, vol. 3(3), pages 229-248, September.

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