Does direct foreign investment affect domestic credit constraints?

Ann Harrison and Margaret S. McMillan

Chapter 7 in Globalization, Firms, and Workers, 2022, pp 153-180 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Firms in developing countries cite credit constraints as one of their primary obstacles to investment. Direct foreign investment may ease credit constraints by bringing in scarce capital. Alternatively, if foreign firms borrow heavily from domestic banks, they may crowd local firms out of domestic capital markets. Using firm data from the Ivory Coast, we test whether: (1) domestic firms are more credit constrained than foreign firms, and (2) whether borrowing by foreign firms exacerbates domestic firm credit constraints. Results provide support for both hypotheses. We also find that state-owned enterprises (SOEs) are less financially constrained than other domestic enterprises.

Keywords: Globalization; Trade Reform; Foreign Direct Investment; Labour Markets; Employment; Wages; Offshoring; Innovation; Credit Constraints; Industrial Policy; Labour Rights Activism (search for similar items in EconPapers)
JEL-codes: F02 F6 F63 (search for similar items in EconPapers)
Date: 2022
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Journal Article: Does direct foreign investment affect domestic credit constraints? (2003)
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