Eva Rytter Sunesen (Department of Economics, University of Copenhagen)
Abstract
An important feature of the world economy is the close global and regional integration due to strong trade and investment relations among countries. The high degree of integration between countries is likely to give rise to business cycle synchronisation in which case shocks will spillover from one country to another. This will have implications for the way investors evaluate the return and risk of investing abroad. This paper utilises a simple mean-variance optimisation framework where global and regonal factors capture the interdependence between countries. The model implies that FDI is driven by the risk-adjusted rate of return as well as global and regional spillovers. The preditions of the model are con rmed in a sample of 60 countries over the period 1970-2000.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
08-17.
Length: 17 pages Date of creation: Aug 2008 Date of revision: Handle: RePEc:kud:kuiedp:0817
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Find related papers by JEL classification: F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions R11 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Analysis of Growth, Development, and Changes E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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