Fire‐sale FDI? The Impact of Financial Crises on Foreign Direct Investment

We analyze the evolution of foreign direct investment ( FDI ) inflows to developing and emerging countries around financial crises. We empirically examine the Fire‐Sale FDI hypothesis and describe the pattern of FDI inflows surrounding financial crises. We also add a more granular detail about the types of financial crises and their potentially differential effects on FDI . We distinguish between mergers and acquisitions ( M & A ) and greenfield investment, as well as between horizontal (tariff jumping) and vertical (integrating production stages) FDI . We find that financial crises have a strong negative effect on inward FDI in our sample. Crises are also shown to reduce the value of horizontal and vertical FDI . We do not find empirical evidence of fire‐sale FDI ; on the contrary, financial crises are shown to affect FDI flows and M & A activity negatively.