Fire-sale FDI? The Impact of Financial Crises on Foreign Direct Investment

Olga Stoddard and Ilan Noy

Review of Development Economics, 2015, vol. 19, issue 2, 387-399

Abstract: We analyze the evolution of foreign direct investment (FDI) inflows to developing and emerging countries around financial crises. We empirically 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 horizontal (tariff jumping) and vertical (integrating production stages) FDI. 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 negatively.

Date: 2015
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Working Paper: Fire-Sale FDI? The Impact of Financial Crisis on Foreign Direct Investment (2012)
Working Paper: Fire-Sale FDI? The impact of financial crises on foreign direct investment (2012)
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