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American Economic Review: Vol. 92 No. 3 (June 2002)

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Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit

Article Citation

Klein, Michael W., Joe Peek, and Eric S. Rosengren. 2002. "Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit ." American Economic Review, 92(3): 664-682.

DOI: 10.1257/00028280260136309

Abstract

During the 1980's, theories were developed to explain the striking correlation between real exchange rates and foreign direct investment (FDI). However, this relationship broke down for Japanese FDI in the 1990's, as the real exchange rate appreciated while FDI plummeted. We propose the relative access to credit hypothesis and show that unequal access to credit by Japanese firms contributes to the explanation of declining Japanese FDI. Using bank-level and firm-level data sets, we find that financial difficulties at banks were economically and statistically important in reducing the number of FDI projects by Japanese firms into the United States. (JEL G21, F36)

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Authors

Klein, Michael W. (Fletcher School of Law and Diplomacy, Tufts University, Medford, MA 02155, and National Bureau of Economic Research)
Peek, Joe (Gatton College of Business and Economics, University of Kentucky, Lexington, KY 40506)
Rosengren, Eric S. (Supervision and Regulation Department, T-10, Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA 02106)


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