Foreign direct investment and the Czech corporate sector : potential risks to financial stability

Abstract

This article discusses the potential risks to price stability stemming from the influence of foreign direct investment on the economy. The analysis uses corporate data from a unique Deutsche Bundesbank database containing an almost complete sample of German enterprises that invested in the Czech Republic between 1996 and 2004.

Attention was given to two issues: the role of intra-group financing in foreign-owned corporations, including its potential effect on financial intermediation in the economy as a whole, and the life cycle of an investment as an indicator of possible investment outflows in the future.