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Exports and foreign direct investments in an endogenous-entry model with real and nominal uncertainty

  • Cavallari, Lilia

Drawing on a tractable DSGE model with nominal rigidity, this paper studies the implications of firms' entry in domestic and foreign markets for the international business cycle. The paper shows that the decision to enter a new market as well as the choice whether to invest at home or abroad depend on global monetary and productivity conditions. I find that a domestic monetary expansion might favor or deter start-up investments, depending on whether the potential entrant is a national or a multinational firm. Moreover, a structural policy change, as an increase in the degree of monetary stabilization, has a positive impact on trend investments in all sectors. Firms' dynamics, in turn, amplifies consumption and employment spillovers in the world economy. I stress that this may have non-negligible consequences for welfare.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 32 (2010)
Issue (Month): 1 (March)
Pages: 300-313

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Handle: RePEc:eee:jmacro:v:32:y:2010:i:1:p:300-313
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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