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Business cycle determinants of US foreign direct investments

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  • Cavallari, Lilia
  • D'Addona, Stefano

Abstract

This paper investigates the role of output fluctuations and exchange rate volatility in driving US foreign direct investments (FDI). Using a sample of 46 economies over the period 1982-2009, we provide evidence of a positive relation between US FDI and host country’s cyclical conditions. Allowing for asymmetry over the business cycle, we find that the output elasticity of foreign investments is higher in booms than in recessions. An increase in exchange rate volatility, on the other hand, has a strong deterrent effect on US foreign investments. This effect is fairly stable over the business cycle.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43616.

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Date of creation: Dec 2012
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Handle: RePEc:pra:mprapa:43616

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Keywords: FDI; business cycle; cyclical output; exchange rate volatility;

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  5. Logan Lewis, 2011. "Exports versus Multinational Production under Nominal Uncertainty," 2011 Meeting Papers 223, Society for Economic Dynamics.
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  24. Cavallari Lilia, 2007. "A Macroeconomic Model of Entry with Exporters and Multinationals," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-32, September.
  25. Thomas A. Lubik & Katheryn N. Russ, 2012. "Exchange rate volatility in a simple model of firm entry and FDI," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 51-76.
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Cited by:
  1. KARGI, Bilal, 2014. "Portfolio in Turkish Economy, and A Long Termed Relation Between Foreign Direct Investments and The Growth, and The Structural Breakage Analysis (1980-2012)," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 70-81.

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