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Shaking up Foreign Finance: FDI in a Post-Disaster World

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  • Robert Reinhardt

    (University Paris 1 Panthéon-Sorbonne)

Abstract

This paper studies the effects earthquakes have on inward foreign direct investment (FDI) within a country. I use a dynamic difference-in-difference model to estimate the impact of geophysical disaster exposure in 416 Indonesian districts. The effects are only temporary: FDI inflows plummet by 90% on average in the first year after an earthquake before recovering to pre-earthquake levels. The effect is largely driven by shocks through affected upstream industries within local supply chains, and centered within the manufacturing sector. This highlights the importance to also consider indirect earthquake effects through spatial and production networks, besides the direct effects on labor and capital.

Suggested Citation

  • Robert Reinhardt, 2024. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Economics of Disasters and Climate Change, Springer, vol. 8(2), pages 317-348, July.
    • Handle: RePEc:spr:ediscc:v:8:y:2024:i:2:d:10.1007_s41885-024-00148-2
    DOI: 10.1007/s41885-024-00148-2
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    References listed on IDEAS

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