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Credit conditions and foreign direct investment during the global financial crisis

Author

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  • Desbordes, Rodolphe
  • Wei, Shang-Jin

Abstract

This paper investigates the effect that tight credit conditions had on outward foreign direct investment flows during the 2008-2010 global financial crisis. A difference-in-differences approach is used to isolate a"credit channel"impact of the global financial crisis on foreign direct investment. The global financial crisis had a stronger negative impact on the relative volume of outward foreign direct investment in financially vulnerable sectors in more financially developed countries, especially if these countries also experienced a banking crisis. These results suggest that lack of access to external finance can partly explain the drop in foreign direct investment during the global financial crisis.

Suggested Citation

  • Desbordes, Rodolphe & Wei, Shang-Jin, 2014. "Credit conditions and foreign direct investment during the global financial crisis," Policy Research Working Paper Series 7063, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7063
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    Keywords

    Debt Markets; Access to Finance; Bankruptcy and Resolution of Financial Distress; Economic Theory&Research; Emerging Markets;

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