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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. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.

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
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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. Markusen, James R & Maskus, Keith E, 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. Doytch, Nadia, 2015. "Sectoral FDI cycles in South and East Asia," Journal of Asian Economics, Elsevier, vol. 36(C), pages 24-33.
    2. Kamel ABDELLAH ( GREThA, CNRS, UMR 5113 & ISG, UNIVERSITE DE TUNIS) & Dalila NICET-CHENAF (GREThA, CNRS, UMR 5113) & Eric ROUGIER (GREThA, CNRS, UMR 5113), 2012. "FDI and macroeconomic volatility: A close-up on the source countries," Cahiers du GREThA 2012-21, Groupe de Recherche en Economie Théorique et Appliquée.
    3. 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.
    4. 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.
    5. 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," Larefi Working Papers 1405, Larefi, Université Bordeaux 4.
    6. Tatomir, Cristina F. & Popovici, Oana, 2011. "Eyes on Romania: what to look when investing here?," MPRA Paper 36140, University Library of Munich, Germany.
    7. repec:eee:socmed:v:181:y:2017:i:c:p:74-82 is not listed on IDEAS
    8. Carlos Rodríguez & Ricardo Bustillo, 2015. "Foreign Direct Investment and the Business Cycle: New Insights after the Great Recession," Prague Economic Papers, University of Economics, Prague, vol. 2015(2), pages 136-153.

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