Foreign direct investment and macroeconomic risk

Jinjarak, Yothin

Abstract

Motivated by the macroeconomic fluctuations and policy regime switches frequently observed in developing countries, this paper provides cross country-industry evidence on the links between a host country's macro risks and foreign direct investment (FDI) activities. For each industry I measure vertical FDI share as a ratio of exports to a parent country relative to local sales by foreign affiliates. Using a panel sample from 1989 to 1999, 1 find that FDI activities of US multinationals in industries with higher share of vertical FDI respond disproportionately more to negative effects of macro-level demand, supply, and sovereign risks. However, when institutional quality and total FDI share of the host country are sufficiently low, the merits of cross-industry vertical versus horizontal FDI in response to macro risks disappear.

Citation

Jinjarak, Y. (2007). Foreign direct investment and macroeconomic risk. Journal of Comparative Economics, 35(3), 509-519. https://doi.org/10.1016/j.jce.2007.05.002

• Journal Article Type: Article
• Publication Date: Sep 1, 2007
• Deposit Date: Jun 15, 2010
• Publicly Available Date: Mar 10, 2025
• Journal: Journal of Comparative Economics
• Print ISSN: 0147-5967
• Electronic ISSN: 1095-7227
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 35
• Issue: 3
• Pages: 509-519
• DOI: https://doi.org/10.1016/j.jce.2007.05.002