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Investment Behaviour of Financially Constrained Multinational Corporations: Consequences for the International Transmission of Business Cycle Fluctuations

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  • Dietrich, Diemo

Abstract

The paper investigates the investment decision of a financially constrained multinational corporation (MNC) planning investment projects both at home and in a developing country. The collateral values of the projects diverge because of country specific transactions costs so that the willingness of banks to grant a loan depends not only on the MNCs financial wealth but also on the share of FDI in total investment. It is shown that i) variations in the MNCs financial standing affects FDI stronger than domestic investment, ii) FDI is likely to decrease following a macroeconomic shock to the MNC parent, and iii) domestic investment is likely to increase following a macroeconomic shock to the MNC affiliate.

Suggested Citation

  • Dietrich, Diemo, 2002. "Investment Behaviour of Financially Constrained Multinational Corporations: Consequences for the International Transmission of Business Cycle Fluctuations," IWH Discussion Papers 165/2002, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-165
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    Cited by:

    1. Diemo Dietrich & Tobias Knedlik & Axel Lindner, 2011. "Central and Eastern European countries in the global financial crisis: a typical twin crisis?," Post-Communist Economies, Taylor & Francis Journals, vol. 23(4), pages 415-432, April.
    2. Claudia M. Buch & Alexander Lipponer, 2005. "Business Cycles and FDI: Evidence from German Sectoral Data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(4), pages 732-759, December.
    3. Dietrich, Diemo & Jindra, Björn, 2010. "Corporate governance in the multinational enterprise: A financial contracting perspective," International Business Review, Elsevier, vol. 19(5), pages 446-456, October.
    4. Zemanek, Holger, 2004. "Investitions- und Finanzierungsverhalten Multinationaler Unternehmen," IWH Discussion Papers 197/2004, Halle Institute for Economic Research (IWH).

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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