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Fire-Sale FDI? The Impact of Financial Crisis on Foreign Direct Investment

  • Olga Bogach

    ()

    (Department of Economics, University of Hawaii at Manoa)

  • Ilan Noy

    ()

    (Department of Economics, University of Hawaii at Manoa)

In this paper, we analyze the evolution of foreign direct investment (FDI) inflows to developing and emerging countries around financial crises. We empirically and thoroughly examine the Fire-Sale FDI hypothesis and describe the pattern of FDI inflows surrounding financial crises. We also add a more granular detail about the types of financial crises and their potentially differential effects on FDI. We distinguish between Mergers and Acquisitions (M&A) and Greenfield investment, as well as between different motivations for FDI—horizontal (tariff jumping) and vertical (integrating production stages). We find that financial crises have a strong negative effect on inward FDI in our sample. Crises are also shown to reduce the value of horizontal and vertical FDI. We do not find empirical evidence of Fire-Sale FDI. On the contrary, financial crises are shown to affect FDI flows and M&A activity adversely.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_12-5.pdf
File Function: First version, 2012
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Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201205.

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Length: 35 pages
Date of creation: 21 Mar 2012
Date of revision:
Handle: RePEc:hai:wpaper:201205
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