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

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  • Prema-chandra Athukorala

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Abstract

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.

Suggested Citation

  • Prema-chandra Athukorala, 2003. "FDI in Crisis and Recovery: Lessons from the 1997-98 Asian Crisis," Departmental Working Papers 2003-04, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2003-04
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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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    1. 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.
    2. Prema-chandra Athukorala, 2001. "Crisis and Recovery in Malaysia," Books, Edward Elgar Publishing, number 2340.
    3. Robert E. Lipsey & Robert C. Feenstra & Carl H. Hahn & George N. Hatsopoulos, 1999. "The Role of Foreign Direct Investment in International Capital Flows," NBER Chapters,in: International Capital Flows, pages 307-362 National Bureau of Economic Research, Inc.
    4. Sadayuki Takii & Eric Ramstetter, 2007. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 43(3), pages 295-322.
    5. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
    6. Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
    7. 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.
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    Cited by:

    1. Adalgiso Amendola & Anna Maria Ferragina & Rosanna Pittiglio & Filippo Reganati, 2012. "Are exporters and multinational firms more resilient over a crisis? First evidence for manufacturing enterprises in Italy," Economics Bulletin, AccessEcon, vol. 32(3), pages 1914-1926.
    2. Sajid Anwar & Desh Gupta, 2006. "Financial Restructuring and Economic Growth in Thailand," Global Economic Review, Taylor & Francis Journals, vol. 35(1), pages 113-127.
    3. Kornkarun Cheewatrakoolpong & Somprawin Manprasert, 2012. "Trade concentration and crisis spillover: Case study of transmission of the supprime crisis to Thailand," Working Papers 11212, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    4. FERRAGINA, Anna Maria, 2013. "The Impact of FDI on Firm Survival and Employment: A Comparative Analysis for Turkey and Italy," CELPE Discussion Papers 127, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    5. Athukorala, Prema-Chandra & Jongwanich, Juthathip, 2012. "How Effective are Capital Controls? Evidence from Malaysia," Asian Development Review, Asian Development Bank, vol. 29(2), pages 1-47.
    6. Vintila Denisia Mariana, 2011. "Foreign Direct Investments During Financial Crises," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 41-45, December.
    7. Desh Gupta & Milind Sathye, 2004. "Financial Developments in India: Should India introduce capital account convertibility?," ASARC Working Papers 2004-07, The Australian National University, Australia South Asia Research Centre.
    8. Varum, Celeste Amorim & Rocha, Vera Catarina Barros, 2011. "Do foreign and domestic firms behave any different during economic slowdowns?," International Business Review, Elsevier, vol. 20(1), pages 48-59, February.
    9. repec:kap:sbusec:v:48:y:2017:i:3:d:10.1007_s11187-016-9803-0 is not listed on IDEAS

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    Keywords

    East Asia; financial crisis; foreign direct investment; capital flows;

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