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Foreign Direct Investment and International Business Cycle Comovement

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Author Info
W.Jos Jansen
Ad C.J.Stokman

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Abstract

This paper investigates the relationship between bilateral FDI positions and cross-country business cycle correlations in the period 1982-2001. We find that countries that have comparatively intensive FDI relations also have more synchronized business cycles during 1995-2001. Before 1995, we also find a positive association between FDI linkages and output comovement, but this may partly reflect the effects of trade relations. Moreover, more intensive FDI links are also associated with a greater vulnerability to lagged output spillovers from abroad, whereas trade links are not. Policy implications of our research are (1) that there is an underlying tendency for business cycles to exhibit greater comovement in the future, and (2) that policy makers need to incorporate the FDI linkage among economies in their models and analytical framework for policy analysis.

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Paper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2003-10.

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Date of creation: Oct 2003
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Handle: RePEc:dnb:mebser:2003-10

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Related research
Keywords: foreign direct investment; business cycle synchronization; international linkages; spillovers;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier. [Downloadable!] (restricted)
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  2. W.Jos Jansen & Ad C.J.Stokman, 2003. "The Importance of Multinational Companies for Global Economic Linkages," DNB Staff Reports (discontinued) 99, Netherlands Central Bank. [Downloadable!]
    Other versions:
  3. R-P. Berben & W.J. Jansen, 2001. "Comovement in International Equity Markets: a Sectoral View," MEB Series (discontinued) 2001-11, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
    Other versions:
  4. Laurence Boone & Claude Giorno & Pete Richardson, 1998. "Stock Market Fluctuations and Consumption Behaviour: Some Recent Evidence," OECD Economics Department Working Papers 208, OECD, Economics Department. [Downloadable!]
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  7. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June. [Downloadable!] (restricted)
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  8. Jakob de Haan & Robert Inklaar & Olaf Sleijpen, 2002. "Have Business Cycles Become More Synchronized?," Journal of Common Market Studies, Blackwell Publishing, vol. 40(1), pages 23-42, 03. [Downloadable!] (restricted)
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  11. Robin L. Lumsdaine & Eswar S. Prasad, 2003. "Identifying the Common Component of International Economic Fluctuations: A New Approach," Economic Journal, Royal Economic Society, vol. 113(484), pages 101-127, January. [Downloadable!] (restricted)
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  12. Rob Luginbuhl & Siem Jan Koopman, 2003. "Convergence in European GDP Series," Tinbergen Institute Discussion Papers 03-031/4, Tinbergen Institute. [Downloadable!]
  13. Maria W. Otoo, 1999. "Consumer sentiment and the stock market," Finance and Economics Discussion Series 1999-60, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  15. John W. Budd & Matthew J.Slaughter, 2000. "Are Profits Shared Across Borders? Evidence on International Rent Sharing," NBER Working Papers 8014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Robert H. McGuckin & Sang V. Nguyen, 1995. "On Productivity and Plant Ownership Change: New Evidence from the Longitudinal Research Database," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 257-276, Summer. [Downloadable!] (restricted)
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  19. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2001. "Long-Term Global Market Correlations," Yale School of Management Working Papers ysm237, Yale School of Management. [Downloadable!]
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  20. Gur Huberman & Simon Gilchrist & Charles Himmelberg, 2004. "Do Stock Price Bubbles Influence Corporate Investment?," 2004 Meeting Papers 147, Society for Economic Dynamics. [Downloadable!]
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  21. William L. Griever & Gary A. Lee & Francis E. Warnock, 2001. "The U.S. system for measuring cross-border investment in securities: a primer with a discussion of recent developments," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 634-650. [Downloadable!]
  22. Jansen, W. Jos & Nahuis, Niek J., 2003. "The stock market and consumer confidence: European evidence," Economics Letters, Elsevier, vol. 79(1), pages 89-98, April. [Downloadable!] (restricted)
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  23. Blomström, Magnus & Globerman, Steve & Kokko, Ari, 2000. "The Determinants of Host Country Spillovers from Foreign Direct Investment," CEPR Discussion Papers 2350, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Buch, Claudia M. & Lipponer, Alexander, 2005. "Business cycles and FDI : evidence from German sectoral data," Discussion Paper Series 1: Economic Studies 2005,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  2. Enzo Weber, 2006. "Macroeconomic Integration in Asia Pacific: Common Stochastic Trends and Business Cycle Coherence," SFB 649 Discussion Papers SFB649DP2006-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  3. W. Jos Jansen & Ad C.J. Stokman, 2003. "International Rent Sharing and Domestic Labour Markets: A Macroeconomic Analysis," MEB Series (discontinued) 2003-14, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
    Other versions:
  4. Mihir A. Desai & C. Fritz Foley, 2004. "The Comovement of Returns and Investment Within the Multinational Firm," NBER Working Papers 10785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Stefano Schiavo, 2005. "Financial integration, GDP correlation and the endogeneity of optimum currency areas," Working Papers 25, Università di Verona, Dipartimento di Scienze economiche. [Downloadable!]
    Other versions:
  6. Enzo Weber, 2007. "Regional and Outward Economic Integration in South-East Asia," SFB 649 Discussion Papers SFB649DP2007-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
    Other versions:
  7. Clement van de Coevering, 2003. "Structural convergence and monetary integration in Europe," MEB Series (discontinued) 2003-20, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
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