Dynamic Effects of Foreign Direct Investment When Credit Markets are Imperfect

Konferenzbeitrag

This paper argues that foreign direct investment in economies with credit market imperfections may increase their vulnerability to capital flow shocks. Due to better access to financial markets foreign firms can use other wage contracts than domestic ones. This alters the domestic wage composition and the subsequent wealth distribution. When credit markets are imperfect, the wealth distribution typically determines an economy's growth potential in autarky; hence, high exposure to foreign direct investment may significantly impede the capability to recover from sudden withdrawals of foreign capital. This is substantiated by empirical evidence on durations of output recovery after systemic sudden stops.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Proceedings of the German Development Economics Conference, Hannover 2010 ; No. 5

Classification and Topics

• Classification: Wirtschaft ; Economic Growth of Open Economies ; Multinational Firms; International Business ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: Credit market imperfections ; foreign direct investment ; growth ; occupational choice ; sudden stops

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gall, Thomas ; Schiffbauer, Marc ; Kubny, Julia
• Event: Veröffentlichung
• (who): Verein für Socialpolitik, Ausschuss für Entwicklungsländer
• (where): Göttingen
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/40002
• Last update: 10.03.2025, 11:43 AM CET