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Journal of Economic Integration 2021 June;36(2) :227-261.
Foreign Direct Investment and Financial Constraints: Firm-Level Evidence from Cambodia, Lao PDR, and Myanmar

Bopith Bun 

Waseda University, Japan
Corresponding Author: Bopith Bun ,Tel: +81-90-9817-6768, Email:
Copyright ©2021 Journal of Economic Integration
Financial constraints have been a significant obstacle to firms operating in developing countries. Prior studies show that foreign direct investment (FDI) helps to ease credit constraints for domestic firms. However, they only account for horizontal FDI spillovers. This paper therefore investigates both horizontal and vertical FDI spillovers using firm-level data from Cambodia, Lao PDR, and Myanmar (CLM). The key findings of this paper are threefold. First, FDI inflows lessen the financial constraints faced by local firms through partnership or joint venture. Second, an increasing share of FDI in horizontally and vertically related industries raises higher credit constraints for domestic firms. Third, the crowding-out effect of FDI is not uniform across domestic firms of different sizes. Therefore, policymakers should be aware of these possible negative spillovers and formulate policy to maintain FDI inflows while also ensuring the growth and survival of domestic firms.

JEL Classification
F23: Multinational Firms; International Business
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
O16: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O19: International Linkages to Development; Role of International Organizations
Keywords: Financial Constraints | Foreign Direct Investment | Horizontal and Vertical Spillovers | Developing Countries | Ordered Probit Model
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