IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Business cycle determinants of US foreign direct investments

  • Lilia Cavallari
  • Stefano D'Addona

This article investigates the role of output fluctuations and exchange rate volatility in driving US FDIs. Using a sample of 46 economies over the period 1982 to 2009, we provide the 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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1080/13504851.2013.767971
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 20 (2013)
Issue (Month): 10 (July)
Pages: 966-970

as
in new window

Handle: RePEc:taf:apeclt:v:20:y:2013:i:10:p:966-970
Contact details of provider: Web page: http://www.tandfonline.com/RAEL20

Order Information: Web: http://www.tandfonline.com/pricing/journal/RAEL20

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Cushman, David O, 1985. "Real Exchange Rate Risk, Expectations, and the Level of Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 297-308, May.
  2. repec:fip:fedreq:y:2012:i:1q:p:51-76:n:vol.98no.1 is not listed on IDEAS
  3. Goldberg, Linda S & Kolstad, Charles D, 1995. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 855-73, November.
  4. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  5. Ester Faia, 2010. "Financial Frictions And The Choice Of Exchange Rate Regimes," Economic Inquiry, Western Economic Association International, vol. 48(4), pages 965-982, October.
  6. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
  7. Levy Yeyati, Eduardo & Panizza, Ugo & Stein, Ernesto, 2007. "The cyclical nature of North-South FDI flows," Journal of International Money and Finance, Elsevier, vol. 26(1), pages 104-130, February.
  8. Campa, Jose & Goldberg, Linda S., 1995. "Investment in manufacturing, exchange rates and external exposure," Journal of International Economics, Elsevier, vol. 38(3-4), pages 297-320, May.
  9. Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November.
  10. Claudia M. Buch & Alexander Lipponer, 2005. "Business Cycles and FDI: Evidence from German Sectoral Data," Kiel Working Papers 1245, Kiel Institute for the World Economy.
  11. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. 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, 02.
  13. repec:taf:applec:45:y:2013:i:18:p:2603-2610 is not listed on IDEAS
  14. Kempf, Hubert & Gilchrist, Simon & Hairault, Jean-Olivier, 2002. "Monetary policy and the financial accelerator in a monetary union," Working Paper Series 0175, European Central Bank.
  15. 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.
  16. Bruce A. Blonigen & Jeremy Piger, 2014. "Determinants of foreign direct investment," Canadian Journal of Economics, Canadian Economics Association, vol. 47(3), pages 775-812, August.
  17. Lilia Cavallari & Stefano d'Addona, 2013. "Nominal and real volatility as determinants of FDI," Applied Economics, Taylor & Francis Journals, vol. 45(18), pages 2603-2610, June.
  18. Russ, Katheryn Niles, 2007. "The endogeneity of the exchange rate as a determinant of FDI: A model of entry and multinational firms," Journal of International Economics, Elsevier, vol. 71(2), pages 344-372, April.
  19. Werner Holzl, 2005. "Tangible and intangible sunk costs and the entry and exit of firms in a small open economy: the case of Austria," Applied Economics, Taylor & Francis Journals, vol. 37(21), pages 2429-2443.
  20. Logan Lewis, 2011. "Exports versus Multinational Production under Nominal Uncertainty," 2011 Meeting Papers 223, Society for Economic Dynamics.
  21. Stevens, Guy V. G., 1998. "Exchange Rates and Foreign Direct Investment: A Note," Journal of Policy Modeling, Elsevier, vol. 20(3), pages 393-401, June.
  22. Assaf Razin & Efraim Sadka, 2007. "Introduction to Foreign Direct Investment: Analysis of Aggregate Flows
    [Foreign Direct Investment: Analysis of Aggregate Flows]
    ," Introductory Chapters, Princeton University Press.
  23. Katheryn Russ, 2012. "Exchange rate volatility and first-time entry by multinational firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(2), pages 269-295, June.
  24. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  25. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:20:y:2013:i:10:p:966-970. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.