Date of Award

5-2013

Document Type

Thesis

Degree Name

Master of Arts (MA)

Legacy Department

Economics

Advisor

Baier, Scott

Committee Member

Tsui , Kevin

Committee Member

Jerzmanowski , Michal

Abstract

With as much importance as Foreign Direct Investment, an enormous amount of study on the factors which might hamper Foreign Direct Investment has been done with a lot of research. Also, the impact of a crisis on FDI has been especially appealing due to the recent economic depression. However, the literature about the linkage between one of the crises, a banking crisis and FDI is sparse even though a banking crisis is highly correlated with the overall economy's damage. With data collected for 60 countries for the years 1990-2010, this paper examines the relationship between Foreign Direct Investment and a banking crisis in addition to the linkage between a banking crisis and domestic investment. The pooled ordinary least squares is used for the first empirical method. The lagged investment is done for robustness and the fixed effects is used to check a final robustness. The results indicate that banking crisis is highly correlated with domestic investment rate while the lagged value of banking crisis does not seem to have any significant impact. However, the results with fixed effects show that the lagged effect of banking crisis has a large impact on investment while the banking crisis variables turn out to be not correlated with investment. For FDI, both the banking crisis and the lagged value of banking crisis do not show any significance in all specifications. From a policy perspective, these results suggest that building up the strength of the banking sector is critical to protect domestic economies. Meanwhile it is not an important determinant to attract and host FDI.

Included in

Economics Commons

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