Does Foreign Direct Investment Promote Economic Stability in Developing Countries?
The University of Nottingham Research Paper No. 2011/14
26 Pages Posted: 29 Nov 2011
Date Written: November 29, 2011
Does foreign direct investment aid or hinder economic recovery ensuing a financial crisis? The paper tests the hypothesis that foreign direct investors are less affected by volatility (uncertainty) on their investment decisions. The data comes from the Business Enterprise and Economic Performance Surveys (BEEPS) collected by the World Bank. The investment data is applied using a Q model specification and sales growth data using a simple SCP model. The main finding is that foreign held firms are different from domestically held firms and especially domestically export active firms because of lower adjustment cost (which makes them continue to invest) during episodes of uncertainty.
Keywords: foreign direct investment, volatility, firm-level investment, firm growth
JEL Classification: F23, G01, L25, O12
Suggested Citation: Suggested Citation