Investment Behaviour of Financially Constrained Multinational Corporations: Consequences for the International Transmission of Business Cycle Fluctuations

Diemo Dietrich

No 165/2002, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: The paper investigates the investment decision of a financially constrained multinational corporation (MNC) planning investment projects both at home and in a developing country. The collateral values of the projects diverge because of country specific transactions costs so that the willingness of banks to grant a loan depends not only on the MNCs financial wealth but also on the share of FDI in total investment. It is shown that i) variations in the MNCs financial standing affects FDI stronger than domestic investment, ii) FDI is likely to decrease following a macroeconomic shock to the MNC parent, and iii) domestic investment is likely to increase following a macroeconomic shock to the MNC affiliate.

Date: 2002
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Related works:
Journal Article: Financing FDI into Developing Economies and the International Transmission of Business Cycle Fluctuations (2004)
Working Paper: Investment Behaviour of Financially Constrained Multinational (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:iwh-165

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