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Financial globalization and foreign direct investment

Listed author(s):
  • Steven Poelhekke

This chapter provides a broad overview of the upward trends in financial globalization and foreign direct investment and asks whether and how financial globalization is linked with the foreign direct investment decisions of non-financial multinational enterprises. Several potential links and their empirical support in the recent literature are discussed: the elements of foreign direct investment that require (global) financial services; the role of trade credit; and the question whether banks follow their customers abroad. Finally, the effect of the recent financial crisis is discussed. It finds that financial globalization provides a reduction in broadly defined transaction costs which can boost both trade and foreign direct investment, at the costs of more exposure of the real economy to financial shocks.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 527.

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Date of creation: Oct 2016
Handle: RePEc:dnb:dnbwpp:527
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