Dynamic Effects of Foreign Direct Investment When Credit Markets are Imperfect
This 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 different wage contracts than domestic ones. This alters the domestic wage composition and the subsequent wealth distribution. Under credit market imperfections the wealth distribution typically determines an economy’s growth potential in autarky; hence high exposure to foreign direct investment may substantially 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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- David Mayer-Foulkes & Peter Nunnenkamp, 2005.
"Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI,"
Kiel Working Papers
1242, Kiel Institute for the World Economy.
- David Mayer-Foulkes & Peter Nunnenkamp, 2009. "Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI ," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 304-318, 05.
- David Mayer-Foulkes & Peter Nunnenkamp, 2005. "Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI," DEGIT Conference Papers c010_045, DEGIT, Dynamics, Economic Growth, and International Trade.
- Reis, Ana Balcao, 2006. "Welfare, taxes and foreign investment," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1045-1061, June.
- Koen De Backer & Leo Sleuwaegen, 2002.
"Does foreign direct investment crowd out domestic entrepreneurship?,"
Vlerick Leuven Gent Management School Working Paper Series
2002-14, Vlerick Leuven Gent Management School.
- Koen De Backer & Leo Sleuwaegen, 2003. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Review of Industrial Organization, Springer, vol. 22(1), pages 67-84, February.
- Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, School of Economics, University of Kent.
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