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International Business Cycle Comovement: Trade and Foreign Direct Investment

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  • Jos Jansen
  • Ad Stokman

Abstract

This paper investigates the relationship between foreign direct investment (FDI) and business cycle synchronization in the period 1982-2010 for eight industrialized countries. We find that more synchronized business cycles are associated with stronger FDI relations during 1995-2010, but that they are mainly associated with stronger trade linkages before 1995. More intensive FDI links are also associated with a greater vulnerability to lagged output spillovers from abroad, whereas trade links are not. Our findings suggest that FDI has become a separate channel through which economies may affect each other and that FDI stocks are now an essential aspect of economic interdependence.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 319.

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Date of creation: Sep 2011
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Handle: RePEc:dnb:dnbwpp:319

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Keywords: business cycle synchronization; international linkages; trade; FDI; vertical integration;

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