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Foreign Direct Investment Outflows and Business‐cycle Fluctuations

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  • Miao Wang
  • M. C. Sunny Wong

Abstract

This paper investigates business‐cycle effects for a country’s foreign direct investment (FDI) outflows. Ordinary least squares and panel regressions show that volatility in economic growth has a negative and significant impact on FDI outflows. Furthermore, we find different types of shocks have asymmetric impacts on FDI outflows. In other words, fluctuations of the same magnitude in a boom and a recession have different effects on FDI outflows. This relationship is more evident in OECD countries. We also include exchange rate volatility, lagged business‐cycle measure, and control for potential endogeneity problems as robustness checks. Our findings are robust across different specifications.

Suggested Citation

  • Miao Wang & M. C. Sunny Wong, 2007. "Foreign Direct Investment Outflows and Business‐cycle Fluctuations," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 146-163, February.
  • Handle: RePEc:bla:reviec:v:15:y:2007:i:1:p:146-163
    DOI: 10.1111/j.1467-9396.2007.00649.x
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    File URL: https://doi.org/10.1111/j.1467-9396.2007.00649.x
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    References listed on IDEAS

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    1. Michael B. Devereux & Charles Engel, 2001. "The Optimal Choice of Exchange Rate Regime: Price-Setting Rules and Internationalized Production," NBER Chapters, in: Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey, pages 163-194, National Bureau of Economic Research, Inc.
    2. Joshua Aizenman, 1992. "Exchange Rate Flexibility, Volatility, and the Patterns of Domestic and Foreign Direct Investment," NBER Working Papers 3953, National Bureau of Economic Research, Inc.
    3. James R. Markusen & Keith E. Maskus, 2002. "Discriminating Among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
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    Cited by:

    1. 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.
    2. Bogdan Dima & Stefana Maria Dima & Oana-Ramona Lobont, 2013. "New empirical evidence of the linkages between governance and economic output in the European Union," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 16(1), pages 68-89, March.
    3. Tatomir, Cristina F. & Popovici, Oana, 2011. "Eyes on Romania: what to look when investing here?," MPRA Paper 36140, University Library of Munich, Germany.
    4. Doytch, Nadia, 2015. "Sectoral FDI cycles in South and East Asia," Journal of Asian Economics, Elsevier, vol. 36(C), pages 24-33.
    5. Alexe, Ileana & Tatomir, Cristina F., 2011. "Does economic convergence with the European Union mean more FDI flows to an economy? Analysis on 5 Central and Eastern Europe countries," MPRA Paper 36139, University Library of Munich, Germany.
    6. Dalila Nicet-Chenaf & Eric Rougier, 2014. "Source and host country volatility and FDI: A gravity analysis of European investment to Middle East and North Africa," Working Papers hal-00985795, HAL.
    7. Kamel ABDELLAH & Dalila NICET-CHENAF & Eric ROUGIER, 2012. "FDI and macroeconomic volatility: A close-up on the source countries," Cahiers du GREThA (2007-2019) 2012-21, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    8. Sangyup Choi & Davide Furceri & Chansik Yoon, 2019. "Policy Uncertainty and FDI Flows: The Role of Institutional Quality and Financial Development," Working papers 2019rwp-144, Yonsei University, Yonsei Economics Research Institute.
    9. 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.
    10. Burns, Darren K. & Jones, Andrew P. & Goryakin, Yevgeniy & Suhrcke, Marc, 2017. "Is foreign direct investment good for health in low and middle income countries? An instrumental variable approach," Social Science & Medicine, Elsevier, vol. 181(C), pages 74-82.

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