From Abnormal Foreign Direct Investment to a Normal Driver of Sudden Stop Episodes

Maria Siranova, Menbere Workie Tiruneh and Brian Konig

International Finance, 2025, vol. 28, issue 2, 92-114

Abstract: In this study, we investigate the role of ‘abnormal FDI’ as a potential driver of sudden stops during the period 2009–2019. The unexplained part of country fixed effects in a bilateral gravity regression is used to calculate the abnormal FDI. We then construct two measures of ‘FDI abnormalcy’ that assess the possible role of an economy as a financial centre or tax haven, and the contribution of ‘FDI abnormalcy’ to total FDI position. The determinants of sudden stops are analyzed using the panel probit model. We find that economies labelled as tax havens or financial centres and economies with comparatively higher shares of inward ‘abnormal FDI’ are associated with a lower incidence of sudden stops.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:bla:intfin:v:28:y:2025:i:2:p:92-114

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