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Business Cycles and FDI: Evidence from German Sectoral Data

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  • Claudia M. Buch
  • Alexander Lipponer

Abstract

Globalization has effected business cycle developments in OECD countries and has increased activities of firms across national borders. This paper analyzes whether these two developments are linked. We use a new firm-level dataset on the foreign activities of German firms to test whether foreign activities are affected by business cycle developments. We aggregate the data by the sector of the reporting firm, the sector of the foreign affiliate, and the host country. Data are annual and cover the period 1989-2002. We find that German outward FDI increases in response to positive cyclical developments abroad and in response to a real depreciation of the domestic currency.
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  • Claudia M. Buch & Alexander Lipponer, 2005. "Business Cycles and FDI: Evidence from German Sectoral Data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(4), pages 732-759, December.
    • Handle: RePEc:spr:weltar:v:141:y:2005:i:4:p:732-759
    DOI: 10.1007/s10290-005-0053-5
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    Cited by:

    1. Javier Cravino & Andrei A. Levchenko, 2017. "Multinational Firms and International Business Cycle Transmission," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 921-962.
    2. Silvio Contessi, 2010. "How does multinational production change international comovement?," Working Papers 2010-041, Federal Reserve Bank of St. Louis.
    3. repec:jes:wpaper:y:2012:v:4:p:668-692 is not listed on IDEAS
    4. Cai, Peilin & Kim, Suk-Joong & Wu, Eliza, 2019. "Foreign direct investments from emerging markets: The push-pull effects of sovereign credit ratings," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 110-125.
    5. Lilia Cavallari & Stefano D'Addona, 2013. "Business cycle determinants of US foreign direct investments," Applied Economics Letters, Taylor & Francis Journals, vol. 20(10), pages 966-970, July.
    6. Filip Novotny, 2015. "Profitability Life Cycle of Foreign Direct Investment and its Application to the Czech Republic," Working Papers 2015/11, Czech National Bank.
    7. Doytch, Nadia, 2015. "Sectoral FDI cycles in South and East Asia," Journal of Asian Economics, Elsevier, vol. 36(C), pages 24-33.
    8. Nadia Doytch, 2022. "FDI: Hot or Cold Money? The Behaviour of Sectoral FDI Inflows and Outflows Over Periods of Growth Accelerations and Decelerations," Foreign Trade Review, , vol. 57(3), pages 324-350, August.
    9. Grivas Chiyaba, 2021. "The components and determinants of FDI within firms: A case study of Zambia," Economics Discussion Papers em-dp2021-09, Department of Economics, University of Reading.
    10. 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).
    11. Manal Omer & Liu Yao, 2011. "Empirical Analysis of the Relationships between inward FDI and Business Cycles in Malaysia," Modern Applied Science, Canadian Center of Science and Education, vol. 5(3), pages 157-157, June.
    12. Dimitrios Asteriou & Argiro Moudatsou, 2015. "Business Cycle Synchronization in the Enlarged EU: The Role of Bilateral Trade and FDI," Review of Development Economics, Wiley Blackwell, vol. 19(1), pages 196-207, February.
    13. Jeffrey A. Edwards & Alfredo A. Romero & Zagros Madjd-Sadjadi, 2016. "Foreign direct investment, economic growth, and volatility: a useful model for policymakers," Empirical Economics, Springer, vol. 51(2), pages 681-705, September.
    14. Sebastian Florian Enea & Silvia Palaºcã, 2012. "Globalization Versus Segregation - Business Cycles Synchronization In Europe," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 4(4), pages 668-692, December.
    15. Carlos Rodríguez & Ricardo Bustillo, 2015. "Foreign Direct Investment and the Business Cycle: New Insights after the Great Recession," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(2), pages 136-153.

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    More about this item

    Keywords

    Business cycles; multinational activity; FDI; real exchange rates;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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