Abdelaal Mahmoud, Ashraf (2011): Financial Crises and Bilateral Foreign Direct Investment Flows.
Download (503kB) | Preview
Despite impressive studies on financial crises consequences and foreign capital flows, by large the research done has examined these economic phenomenons separately without addressing their nexus. This paper aims at bridging this gap by examining the impact of financial crises on bilateral foreign direct investment (BFDI). Financial turmoil reshapes the perception and magnitude of BFDI flows in both host and home countries; host countries governments see in FDI a mean for overcoming the sluggish economic situation and hence become eager to stimulate FDI inflows, while for the same reasons home countries governments, and investors become more cautious about their decisions to invest abroad. This paper addresses in particular the impact of financial crises on FDI in both host and home countries. To that end the paper uses a panel data covering the period 1985-2008 on home countries, as presented by the six largest FDI outflow, and 42 host countries. Empirical analysis applies the system GMM estimator to a gravity model of BFDI flows. The key findings in this paper are that financial crises exerts a negative impact on BFDI, a generalized fact that applies to all financial disturbances that took place during the last 23 years. Second the magnitude of the negative shock of financial crises on FDI differs by type and origins causing the financial crises.
|Item Type:||MPRA Paper|
|Original Title:||Financial Crises and Bilateral Foreign Direct Investment Flows|
|Keywords:||Foreign direct investment; financial crisis; Bilateral Foreign direct investment; dynamic panel data; spatial dependence.|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables
F - International Economics > F0 - General > F02 - International Economic Order
G - Financial Economics > G0 - General > G01 - Financial Crises
|Depositing User:||Abdelaal mahmoud|
|Date Deposited:||26. Apr 2011 06:31|
|Last Modified:||13. Feb 2013 22:42|
Arellano, M, & Bond, S. 1991. Some tests of specification for panel data: Monte Carlo evidence and the application to employment equations. Review of Economic Studies, 58(2):277–297
Arellano, M, & Bover, O.1995. Another look at the instrumental variable estimation of error-components models, Journal of Econometrics, 68(1): 29–51
Balasubramanyam, M. Salisu and David Sapsfor (1996:596), Foreign Direct Investment and Growth in EP and IS Countries, the Economic Journal, No. 106, pp. 92-105
Baltagi, B. H., G. Bresson and A. Pirotte, 2007. "Panel unit root tests and spatial dependence," Journal of Applied Econometrics, 22(2), 339-360
Benassy-Quere, A., M. Coupet, and T. Mayer, 2007, "Institutional Determinants of Foreign Direct Investment," The World Economy 30, 764-782.
Bergstrand, J. H. (1989). The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade, the Review of Economics and Statistics, 71(1), 143
Bevan, A. A., & Estrin, S. (2004). The Determinants of Foreign Direct Investment into European Transition Economies, Journal of Comparative Economics, 32(4), 775
Blonigen, B. A., & Wang, M. 2004. Inappropriate pooling of wealthy and poor countries in empirical FDI studies, NBER Working Paper No. 10378. http://www.nber.org/papers/w10378.pdf.
Blundell, R., & Bond, S. 1998. Initial conditions and moment restrictions in dynamic panel data models, Journal of Econometrics, 87(1): 115–143.
Brainard, S. L. 1997. An empirical assessment of the proximity concentration trade-off between multinational sales and trade, American Economic Review, 87(4): 520–544.
Brenton, P., Mauro, F. D., & Lucke, M (1999). Economic integration and FDI: An Empirical Analysis of Foreign Investment in the EU and in Central and Eastern Europe. Empirica, 26(2), 95
Bruce A. Blonigen, Ronald B. Davies, Helen T. Naughton, Glen R. Waddell, 2005” Spacey Parents: Spatial Autoregressive Patterns in Inbound FDI” NBER Working Paper No. 11466 Issued in July 2005 http://www.nber.org/papers/w11466
Buch, C. M., Kokta, R. M., & Piazolo, D. (2003). Foreign Direct Investment in Europe: Is There Redirection from the South to the East? Journal of Comparative Economics, 31(1), 94
Bougheas, S., Demetriades, P. O., & Morgenroth, E. L. W. (1999). Infrastructure, Transport Costs and Trade, Journal of International Economics, 47(1), 169-189.
Caves, R.E (1996), Multinational Enterprise and Economic Analysis, Second Edition Cambridge: Cambridge University Press.
Coughlin, C. C., and E. Segev, 2000, "Foreign Direct Investment in China: A Spatial Econometric Study," The World Economy 23, 1-23.
Dascal, D, Mattas, K and Tzouvelekas V (2002). An Analysis of EU Wine Trade: a Gravity Model Approach.(European Union) (Statistical Data Included). (European Union)(Statistical Data Included), 8(2), 135(113)
Davies, R. B., and H. T.Naughton (2006). Cooperation in Environmental Policy: A Spatial Approach, https://scholarsbank.uoregon.edu/dspace/bitstream/1794/3879/1/UO-2006-8_Davies_Environmental.pdf.
Dees, Stephane, (1998:120). Foreign Direct Investment in China: Determinants and Effects, Economic Change and Restructuring, Springer, vol. 31(2-3), pages 175-94.
De Mello L. R. (1999:393). Foreign direct investment-led growth: evidence from time series and panel data, Oxford Economic Papers, No. 51, pp. 133-151.
Egger, P., & Pfaffermayr, M. (2004a). Distance, Trade and FDI: A Hausman-Taylor SUR Approach. Journal of Applied Econometrics, 19(2), 227-246.
Egger, P., & Pfaffermayr, M. (2004b). The Impact of Bilateral Investment Treaties on Foreign Direct Investment, Journal of Comparative Economics, 32(4), 788-804.
Erlander, S. (1980). Optimal Spatial Interaction and the Gravity Model, Berlin; New York: Springer-Verlag.
Evenett, S J., and W.Keller (2002) On Theories Explaining the Success of the Gravity Equation, Journal of Political Economy, 110(2), 281-316
Gopinath, M., & Echeverria, R. (2004). Does Economic Development Impact the Foreign Direct Investment-Trade Relationship? A Gravity-Model Approach. American Journal of Agricultural Economics, 86(3), 782.
Grosse, R., & Trevino, L. 1996. Foreign direct investment in the United States: An analysis by country of origin. Journal of International Business Studies, 27(1): 139–155.
Guerin, S. S. (2006). The Role of Geography in Financial and Economic Integration: A Comparative Analysis of Foreign Direct Investment, Trade and Portfolio Investment Flows. The World Economy, 29(2), 189
Hisarciklilar, M., S. S. Kayam, and O. Kayalica, 2006, "Locational Drivers of FDI in MENA Countries: A Spatial Attempt."
H Hill, Jongwanich (2009) Outward Foreign Direct Investment and the Financial Crisis in Developing East Asia. Asian Development Review
Kawai, H., (1994). ―International Comparative Analysis of Economic Growth: Trade Liberalization and Productivity‖, Developing Economies 32, pp. 372-397.
Kimura, F. (2006), “International Production and Distribution Networks in East Asia: 18 Facts, Mechanics, and Policy Implications.” Asian Economic Policy Review 1:346–7
Krugman, Paul (2001: ), ‘Fire-sale FDI’, in Sebastian Edwards(ed), Capital Flows and the Emerging Economies, Chicago: Chicago University Press, , pp.43-60..
Limao, N., & Venables, A. J. (2001). Infrastructure, Geographical Disadvantage, Transport Costs, and Trade, World Bank Economic Review, 15(3), 451
Lipsey, Robert E.,( 2001), “Foreign Direct Investors in Three Financial Crises,” NBER Working Paper No. 8084 (Cambridge, Massachusetts: National Bureau of Economics Research).
Madariaga, N. and Poncet S., 2007, "FDI in Chinese Cities: Spillovers and Impact on Growth", The World Economy, 30, 837-862.
Martínez-Zarzoso, I., & Nowak-Lehmann D, F. (2004). Economic and Geographical Distance: Explaining MERCOSUR Sectoral Exports to the EU. Open Economies Review, 15(3), 291.
McDonald, J. H. (2008). Handbook of biological statistics.Baltimore, MD: Sparky House Publishing.
Navaretti, G. B., & Venables, A. J. 2004.Multinational firms in the world economy. Princeton, NJ: Princeton University Press
Osborne, J. 2002.Notes on the use of data transformations. Practical Assessment, Research & Evaluation, 8(6) http://pareonline.net/getvn.asp?v=8&n=6
Portes, R., & Rey, H. (2005). The Determinants of Cross-Border Equity Flows, Journal of International Economics, 65(2), 269
Siamwalla, A., Vajragupta, Y., & Vichyanond, P. (1999). “Foreign Capital Flows to Thailand: Determinants and Impact”. Thailand Development Research Institute, Bangkok.
Stein, E., and C. Daude, 2007, "Longitude Matters: Time Zones and the Location of Foreign Direct Investment," Journal of International Economics, 71(1), 96-112.
Stone, S. F., & Jeon, B. N. (1999). Gravity-Model Specification for Foreign Direct Investment: A Case of the Asia-Pacific Economies, The Journal of Business and Economic Studies, 5(1), 33.
Tiwari, P., Syamwil, I. B., & Doi, M. (2003). Spatial Pattern of Japanese Manufacturing Industry in Four ASEAN Countries, Papers in Regional Science, 82(3), 403.