Risk, Financial Stability and FDI

Neil Kellard (nkellard@essex.ac.uk), Alexandros Kontonikas (ak16270@essex.ac.uk), Michael Lamla, Stefano Maiani (s.maiani@hw.ac.uk) and Geoffrey Wood

Essex Finance Centre Working Papers from University of Essex, Essex Business School

Abstract: All Foreign Direct Investment (FDI) involves risk. Supplementing the IB literature, we assess the effects of financial system risk on FDI trends. Specifically, we propose a new theoretical paradigm combining institutional risk aversion and institutional affinity, suggesting MNE-generated FDI will be sensitive to sovereign and bank-related risks. Employing a large panel of bilateral FDI holdings from 112 origin countries in the Eurozone, results show that financial stability in origin and host countries, matters for FDI. Policymakers in countries seeking to attract FDI should be attentive to both domestic conditions and the financing environment that MNEs encounter in their home countries.

Keywords: Foreign direct investment; Financial stability; Sovereign yields; Euro area; International regulation (search for similar items in EconPapers)
Date: 2018-11-05
New Economics Papers: this item is included in nep-int
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Journal Article: Risk, financial stability and FDI (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:esy:uefcwp:23409

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