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

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  • Robert Reinhardt

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

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 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.

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  • Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03908250, HAL.
    • Handle: RePEc:hal:cesptp:halshs-03908250
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03908250v2
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    References listed on IDEAS

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    Keywords

    Foreign Direct Investment; Disasters; Risk; Input-Output;
    All these keywords.

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