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Financial spillovers of foreign direct investment: Evidence from China

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  • Ding, Haoyuan
  • Lin, Shu
  • Wu, Shujie
  • Ye, Haichun

Abstract

We study the financial spillovers of Foreign Direct Investment (FDI) to local suppliers through a trade credit channel and a bank loan channel. Using rich Chinese firm-level data, we provide robust evidence that a high concentration of FDI in downstream industries substantially reduces domestic suppliers' trade credit provision and improves their access to bank loans, especially unsecured loans. A variety of empirical strategies suggest that the effects are causal. Furthermore, the beneficial bank loan effect is more pronounced for local suppliers facing more severe information frictions. We also use supplier-customer links to provide additional evidence for FDI's financial spillovers.

Suggested Citation

  • Ding, Haoyuan & Lin, Shu & Wu, Shujie & Ye, Haichun, 2024. "Financial spillovers of foreign direct investment: Evidence from China," Journal of International Economics, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:inecon:v:148:y:2024:i:c:s002219962400014x
    DOI: 10.1016/j.jinteco.2024.103890
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    More about this item

    Keywords

    FDI; Financial spillovers; Trade credit; Bank loans;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F30 - International Economics - - International Finance - - - General
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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