Foreign Direct Investment, Financial Markets and Growth

In recent years LAC’s capital inflows have become increasingly dominated by FDI. While FDI has been traditionally viewed in a more favorable light than debt flows, the recent boom has raised new concerns regarding its desirability and effects. This study will assess the FDI boom from three perspectives, analyzing: (i) The trends in aggregate foreign investment to LAC, against the international evidence and in the framework of international portfolio composition, assessing the role of global vs. country-specific factors in attracting FDI. (ii) The impact of foreign bank entry in the region, focusing on the lending patterns of foreign institutions and investigating whether they affect the overall volatility of credit as well as the access to financing by certain sectors, like SMEs. Because in most countries in the region the same group of foreign banks have become key players, the project will also analyze their role in spreading financial contagion within LAC. (iii) The effects of FDI on firm performance, focusing on its role in determining firms’ vulnerability to and ability to recover from crises and domestic shocks. The study will analyze whether firms that receive FDI and firms that have access to international capital markets are less dependent on domestic economic fluctuations than firms that just rely on domestic financing. Moreover, the recent wave of FDI, through mergers and acquisitions, has produced de-listing of foreign-purchased firms. Thus, the project will study the indirect effects on local capital markets and its consequences on firms that use equity financing.
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Bank Lending to Small Businesses in Latin America: Does Bank Origin Matter?, by G. Clarke, R. Cull, M.S. Martinez Peria, and S. Sanchez
  Explaining the Migration of Stocks from Exchanges in Emerging Economies to International Centers, by S. Claessens, D. Klingebiel, and S. Schmukler
  FDI and Stock Market Development: Complements or Substitutes?, by S. Claessens, D. Klingebiel, and S. Schmukler
  Greenfield FDI vs. Merges and Acquisitions: Does the Distinction Matter?, by C. Calderon, N. Loayza, and L. Serven
  How Does Foreign Bank Participation Affect Access to Credit by /small and Medium Enterprises? Evidence from Firm Survey Data, by G. Clarke, R. Cull, and M.S. Martinez Peria
  World Market Integration Through the Lens of Foreign Direct Investors, by R. Albuquerque, N. Loayza, and L. Serven
 La inversión extranjera en los países en desarrollo, by N. Loayza and L. Serven s

Task Manager: Servén