Financial Globalization and Foreign Direct Investment

33 Pages Posted: 5 Nov 2016

Date Written: November 4, 2016

Abstract

This chapter provides a broad overview of the upward trends in financial globalization and foreign direct investment and asks whether and how financial globalization is linked with the foreign direct investment decisions of non-financial multinational enterprises. Several potential links and their empirical support in the recent literature are discussed: the elements of foreign direct investment that require (global) financial services; the role of trade credit; and the question whether banks follow their customers abroad. Finally, the effect of the recent financial crisis is discussed. It finds that financial globalization provides a reduction in broadly defined transaction costs which can boost both trade and foreign direct investment, at the costs of more exposure of the real economy to financial shocks.

Keywords: foreign direct investment, financial globalization, banks

JEL Classification: F23, F36, F43, O40

Suggested Citation

Poelhekke, Steven, Financial Globalization and Foreign Direct Investment (November 4, 2016). De Nederlandsche Bank Working Paper No. 527, Available at SSRN: https://ssrn.com/abstract=2864410 or http://dx.doi.org/10.2139/ssrn.2864410

Steven Poelhekke (Contact Author)

University of Auckland ( email )

Auckland
New Zealand

HOME PAGE: http://https://sites.google.com/site/stevenpoelhekke/

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