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FDI in Crisis and Recovery: Lessons from the 1997-98 Asian Crisis

  • Prema-chandra Athukorala

    ()

Is foreign direct investment (FDI) more resilient at the onset of an economic crisis and the subsequent economic collapse in a given host country compared to other forms of foreign capital inflows? Are affiliates of multinational enterprises in a crisis-hit country better equipped to withstand a crisis and to aid the recovery process by readjusting their investment, production and sales strategies compared to local firms? This paper examines these and related issues in the context of the 1997-98 economic crisis in East Asia. The paper starts with a scene setting surveys of FDI policy and the overall investment climate in the five crisis-hit countries (Thailand, Malaysia, Indonesia, Korea and the Philippines), with emphasis on changes in investment policy introduced as part of the crisis management package. It then looks at the behaviour of FDI compared to other forms of capital flow after the onset of the crisis, followed by an examination of trends in FDI flows in the recovery process and the comparative performance of affiliates of multinational enterprises (MNEs) in economic adjustment. The findings suggest that FDI was indeed a relatively stable source of foreign capital in the crisis context and that MNE affiliates were instrumental in ameliorating the severity of economic collapse and facilitating the recovery process.

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File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2003/wp-econ-2003-04.pdf
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Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2003-04.

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Length: 24 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:pas:papers:2003-04
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  1. Prema-chandra Athukorala, 2001. "Crisis and Recovery in Malaysia," Books, Edward Elgar, number 2340, March.
  2. Robert E. Lipsey, 2000. "The Role of Foreign Direct Investment in International Capital Flows," NBER Working Papers 7094, National Bureau of Economic Research, Inc.
  3. Anne Krueger & Aaron Tornell, 1999. "The Role of Bank Restructuring in Recovering from Crises: Mexico 1995-98," NBER Working Papers 7042, National Bureau of Economic Research, Inc.
  4. Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
  5. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers 534, Board of Governors of the Federal Reserve System (U.S.).
  6. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
  7. Sadayuki Takii & Eric Ramstetter, 2007. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 43(3), pages 295-322.
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