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

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  • Cavallari, Lilia

Abstract

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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  • Cavallari, Lilia, 2010. "Exports and foreign direct investments in an endogenous-entry model with real and nominal uncertainty," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 300-313, March.
  • Handle: RePEc:eee:jmacro:v:32:y:2010:i:1:p:300-313
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    Citations

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    Cited by:

    1. Stähler, Nikolai, 2017. "A model-based analysis of the macroeconomic impact of the refugee migration to Germany," Discussion Papers 05/2017, Deutsche Bundesbank.
    2. Lewis, Logan T., 2014. "Exports versus multinational production under nominal uncertainty," Journal of International Economics, Elsevier, vol. 94(2), pages 371-386.
    3. Cavallari, Lilia, 2013. "Firms' entry, monetary policy and the international business cycle," Journal of International Economics, Elsevier, vol. 91(2), pages 263-274.
    4. Cavallari, Lilia & D׳Addona, Stefano, 2015. "Exchange rates as shock absorbers: The role of export margins," Research in Economics, Elsevier, vol. 69(4), pages 582-602.
    5. Claudia Busl & Marcus Kappler, 2013. "Does Foreign Direct Investment Synchronise Business Cycles? Results from a Panel Approach," WWWforEurope Working Papers series 23, WWWforEurope.
    6. repec:eee:ecmode:v:64:y:2017:i:c:p:365-383 is not listed on IDEAS
    7. Cooke, Dudley, 2014. "Monetary shocks, exchange rates, and the extensive margin of exports," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 128-145.
    8. Guo, Yan, 2013. "Strategic trade policy, cost uncertainty and FDI determinants," ISU General Staff Papers 201301010800004464, Iowa State University, Department of Economics.
    9. Marta Arespa, 2013. "The intensive and the extensive margins: not only an international issue," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 12(1), pages 1-34, April.
    10. Paul R. Bergin & Giancarlo Corsetti, 2013. "International Competitiveness and Monetary Policy: Strategic Policy and Coordination with a Production Relocation Externality," NBER Working Papers 19356, National Bureau of Economic Research, Inc.
    11. 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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