Business cycle determinants of US foreign direct investments

Cavallari, Lilia and D'Addona, Stefano (2012): Business cycle determinants of US foreign direct investments.

Abstract

This paper investigates the role of output fluctuations and exchange rate volatility in driving US foreign direct investments (FDI). Using a sample of 46 economies over the period 1982-2009, we provide evidence of a positive relation between US FDI and host country’s cyclical conditions. Allowing for asymmetry over the business cycle, we find that the output elasticity of foreign investments is higher in booms than in recessions. An increase in exchange rate volatility, on the other hand, has a strong deterrent effect on US foreign investments. This effect is fairly stable over the business cycle.

• Item Type: MPRA Paper
• Language: English
• Keywords: FDI; business cycle; cyclical output; exchange rate volatility
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models

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