Fire-Sale FDI? The Impact of Financial Crisis on Foreign Direct Investment

Olga V. Bogach () and Ilan Noy ()

No 201205, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: In this paper, we analyze the evolution of foreign direct investment (FDI) inflows to developing and emerging countries around financial crises. We empirically and thoroughly examine the Fire-Sale FDI hypothesis and describe the pattern of FDI inflows surrounding financial crises. We also add a more granular detail about the types of financial crises and their potentially differential effects on FDI. We distinguish between Mergers and Acquisitions (M&A) and Greenfield investment, as well as between different motivations for FDI—horizontal (tariff jumping) and vertical (integrating production stages). We find that financial crises have a strong negative effect on inward FDI in our sample. Crises are also shown to reduce the value of horizontal and vertical FDI. We do not find empirical evidence of Fire-Sale FDI. On the contrary, financial crises are shown to affect FDI flows and M&A activity adversely.

Keywords: International investment; Foreign direct investment (FDI); Financial crises; Mergers and Acquisitions; Multinational firms (search for similar items in EconPapers)
JEL-codes: F21 F23 F29 G01 G34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-int
Date: 2012-03-21
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http://www.economics.hawaii.edu/research/workingpapers/WP_12-5.pdf First version, 2012 (application/pdf)

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Working Paper: Fire-Sale FDI? The impact of financial crises on foreign direct investment (2012)
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