Financial spillovers of foreign direct investment: Evidence from China

Haoyuan Ding, Shu Lin, Shujie Wu and Haichun Ye

Journal of International Economics, 2024, vol. 148, issue C

Abstract: We study the financial spillovers of Foreign Direct Investment (FDI) to local suppliers through a trade credit channel and a bank loan channel. Using rich Chinese firm-level data, we provide robust evidence that a high concentration of FDI in downstream industries substantially reduces domestic suppliers' trade credit provision and improves their access to bank loans, especially unsecured loans. A variety of empirical strategies suggest that the effects are causal. Furthermore, the beneficial bank loan effect is more pronounced for local suppliers facing more severe information frictions. We also use supplier-customer links to provide additional evidence for FDI's financial spillovers.

Keywords: FDI; Financial spillovers; Trade credit; Bank loans (search for similar items in EconPapers)
JEL-codes: F23 F30 F61 F65 G15 G30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:148:y:2024:i:c:s002219962400014x

DOI: 10.1016/j.jinteco.2024.103890

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