Date of this Version
Journal of International Economics
Firms in developing countries cite credit constraints as one of their primary obstacles to investment. Direct foreign investment may ease credit constraints by bringing in scarce capital. Alternatively, if foreign firms borrow heavily from domestic banks, they may crowd local firms out of domestic capital markets. Using firm data from the Ivory Coast, we test whether: (1) domestic firms are more credit constrained than foreign firms, and (2) whether borrowing by foreign firms exacerbates domestic firm credit constraints. Results provide support for both hypotheses. We also find that state-owned enterprises (SOEs) are less financially constrained than other domestic enterprises.
© 2003. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
foreign direct investment, credit constraints
Harrison, A., & McMillan, M. S. (2003). Does Direct Foreign Investment Affect Domestic Credit Constraints?. Journal of International Economics, 61 (1), 73-100. http://dx.doi.org/10.1016/S0022-1996(02)00078-8
Date Posted: 27 November 2017
This document has been peer reviewed.