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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.

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File URL: http://hdl.handle.net/10.1080/13504851.2013.767971
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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

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

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Handle: RePEc:taf:apeclt:v:20:y:2013:i:10:p:966-970
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  1. Eduardo Levy Yeyati & Ugo Panizza & Ernesto H. Stein, 2003. "The Cyclical Nature of North-South FDI Flows," IDB Publications (Working Papers) 6502, Inter-American Development Bank.
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  5. Eduardo Levy Yeyati & Ugo Panizza & Ernesto H. Stein, 2003. "The Cyclical Nature of North-South FDI Flows," Research Department Publications 4317, Inter-American Development Bank, Research Department.
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  7. 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.
  8. Katheryn Niles Russ, 2007. "Exchange Rate Volatility and First-Time Entry by Multinational Firms," NBER Working Papers 13659, National Bureau of Economic Research, Inc.
  9. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
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  17. repec:taf:applec:45:y:2013:i:18:p:2603-2610 is not listed on IDEAS
  18. 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.
  19. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
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