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Risk, Financial Stability and FDI

Author

Listed:
  • Kellard, Neil M
  • Kontonikas, Alexandros
  • Lamla, Michael J
  • Maiani, Stefano
  • Wood, Geoffrey

Abstract

All Foreign Direct Investment (FDI) involves risk. Supplementing the IB literature, we assess the effects of financial system risk on FDI trends. Specifically, we propose a new theoretical paradigm combining institutional risk aversion and institutional affinity, suggesting MNE-generated FDI will be sensitive to sovereign and bank-related risks. Employing a large panel of bilateral FDI holdings from 112 origin countries in the Eurozone, results show that financial stability in origin and host countries, matters for FDI. Policymakers in countries seeking to attract FDI should be attentive to both domestic conditions and the financing environment that MNEs encounter in their home countries.

Suggested Citation

  • Kellard, Neil M & Kontonikas, Alexandros & Lamla, Michael J & Maiani, Stefano & Wood, Geoffrey, 2018. "Risk, Financial Stability and FDI," Essex Finance Centre Working Papers 23409, University of Essex, Essex Business School.
    • Handle: RePEc:esy:uefcwp:23409
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    Cited by:

    1. Andrieş, Alin Marius & Chiper, Alexandra Maria & Ongena, Steven & Sprincean, Nicu, 2024. "External wealth of nations and systemic risk," Journal of Financial Stability, Elsevier, vol. 70(C).
    2. Lili Pan & Lin Wang & Qianqian Feng, 2022. "A Bibliometric Analysis of Risk Management in Foreign Direct Investment: Insights and Implications," Sustainability, MDPI, vol. 14(12), pages 1-18, June.
    3. Milas, Costas & Panagiotidis, Theodore & Papapanagiotou, Georgios, 2024. "UK Foreign Direct Investment in uncertain economic times," Journal of International Money and Finance, Elsevier, vol. 147(C).
    4. Feng, Yusen & Wang, Gang-Jin & Zhu, You & Xie, Chi, 2023. "Systemic risk spillovers and the determinants in the stock markets of the Belt and Road countries," Emerging Markets Review, Elsevier, vol. 55(C).
    5. Faheem Ur Rehman & József Popp & Ejaz Ahmad & Muhammad Asif Khan & Zoltán Lakner, 2021. "Asymmetric and Symmetric Link between Quality of Institutions and Sectorial Foreign Direct Investment Inflow in India: A Fresh Insight Using Simulated Dynamic ARDL Approach," Sustainability, MDPI, vol. 13(24), pages 1-18, December.

    More about this item

    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F30 - International Economics - - International Finance - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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