Foreign direct investment and external financing conditions : evidence from normal and crisis times

Desbordes, Rodolphe and Wei, Shang-Jin (2015) Foreign direct investment and external financing conditions : evidence from normal and crisis times. Scandinavian Journal of Economics. ISSN 0347-0520 (In Press)

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    Abstract

    This paper investigates the effects that external financing conditions in source and destination countries have on foreign direct investment (FDI) in normal and crisis times, using a difference-in- differences approach. We find that source and destination countries’ financial development have a strong positive impact on the relative volume of FDI in financially vulnerable sectors in normal times. On the other hand, during the 2008-2010 global financial crisis, the relative volume of FDI in financially vulnerable sectors fell relatively more in financially developed source and destination countries, most notably if these countries experienced a credit crisis.