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(Non-)Resiliency Of Foreign Direct Investment In The United States During The 2007–2009 Financial Crisis

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  • SILVIO CONTESSI
  • PIERANGELO DE PACE

Abstract

We study the contraction of Foreign Direct Investment (FDI) flows in the United States during the recent financial crisis and show their unusual non-resiliency, which depends in part on the global nature of the economic recession, but also on the increases in the cost of financing FDI in the economies in which the flows originate. To formally study the effects of external financial conditions on FDI in the United States, we exploit the three dimensions of a panel of U.S. inward FDI flows organized by recipient U.S. industries, source countries, and years for the recorded flows. Changes in the cost of finance in the source countries have little or no effect on total inward flows (the sum of equity, debt, and reinvested earnings) over the 2006-2010 period. However, U.S. industries characterized by more financial vulnerability experience statistically significant variations in the debt and equity components of inward FDI flows in response to the changes in the cost of capital that occurred in the source countries during the crisis.
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  • Silvio Contessi & Pierangelo De Pace, 2012. "(Non-)Resiliency Of Foreign Direct Investment In The United States During The 2007–2009 Financial Crisis," Pacific Economic Review, Wiley Blackwell, vol. 17(3), pages 368-390, August.
    • Handle: RePEc:bla:pacecr:v:17:y:2012:i:3:p:368-390
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    2. Olga Stoddard & Ilan Noy, 2015. "Fire-sale FDI? The Impact of Financial Crises on Foreign Direct Investment," Review of Development Economics, Wiley Blackwell, vol. 19(2), pages 387-399, May.
    3. Francis, Johanna L. & Aykut, Dilek & Tereanu, Eugen, 2014. "The cost of private debt over the credit cycle," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 146-181.
    4. Klára KATONA, 2017. "Primary Sources Of Corporate Investment In Hungary," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 64(2), pages 215-232, June.
    5. Bijun Wang & Yuyan Tan & Miaojie Yu & Yiping Huang, 2016. "Special Section: China's Growing Trade and its Role to the World Economy," Pacific Economic Review, Wiley Blackwell, vol. 21(1), pages 72-83, February.
    6. Zhang, Fang & Yang, Lianxing, 2020. "Financing constraints and ODI margins: Evidence from China," Economic Systems, Elsevier, vol. 44(1).

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