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Do FDI inflows to Eastern Europe and Central Asia respond to the business cycle? A sector level analysis

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  • Doytch, Nadia

Abstract

This study aims at establishing the behavior of sectorial Foreign Direct Investments (FDI) inflows, i.e. FDI into the sectors of extractives, manufacturing, aggregate services, and financial and non-financial services, in relation to the business cycle. We construct a model that controls for established determinants of FDI, including income, human capital, quality of institutions, and natural resource endowments, and apply a dynamic panel GMM estimator to data for 19 Eastern European and Central Asian economies. The results suggest that aggregate services FDI inflows are countercyclical, increasing during economic contractions and decreasing during economic booms, while the rest of the FDI inflows are acyclical, i.e. do not respond to the business cycle.

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  • Doytch, Nadia, 2021. "Do FDI inflows to Eastern Europe and Central Asia respond to the business cycle? A sector level analysis," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    • Handle: RePEc:eee:joecas:v:23:y:2021:i:c:s1703494920300414
    DOI: 10.1016/j.jeca.2020.e00194
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    More about this item

    Keywords

    Sectoral FDI; Economic fluctuations; Business cycles; Output gap; Eastern europe and central asia;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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