Financial Frictions and Foreign Direct Investment: Evidence from Japanese Microdata

Horst Raff, Michael Ryan and Frank Stähler

No 10, KCG Working Papers from Kiel Centre for Globalization (KCG)

Abstract: Using Japanese microdata for the period 1980 to 2000 we find evidence for two transmission channels from financial shocks to foreign direct investment: a collateral channel, whereby changes in the value of investors' landholdings affect their borrowing ability; and a lending channel, whereby changes in bank health affect banks' lending ability. Decreasing land values by 55% on average from their peak in 1990 to the sample mean reduces the predicted number of investments by 17%. Reducing banks' market-to-book ratios by an average 61% from their high in 1986 to the sample mean lowers predicted investment counts by 21%.

Keywords: Foreign direct investment; multinational enterprise; credit rationing; collateral; bank health; Japan (search for similar items in EconPapers)
JEL-codes: F23 L20 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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Journal Article: Financial frictions and foreign direct investment: Evidence from Japanese microdata (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kcgwps:10

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