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This paper investigates the role of output fluctuations and exchange rate volatility in driving US foreign direct investments FDI. Using a sample of 46 economiesover 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 otherhand, has a strong deterrent effect on US foreign investments. This effect is fairly stable over the business cycle.

Item Type: MPRA Paper -

Original Title: Business cycle determinants of US foreign direct investments-

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 ; CyclesF - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International BusinessC - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models-

Author: Cavallari, Lilia


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