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Cross-border Investments and Uncertainty: Firm-level Evidence

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  • Rafael Cezar
  • Timothée Gigout
  • Fabien Tripier

Abstract

This paper studies the impact of uncertainty on cross-border investments. We build a dataset of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average e_ect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.

Suggested Citation

  • Rafael Cezar & Timothée Gigout & Fabien Tripier, 2020. "Cross-border Investments and Uncertainty: Firm-level Evidence," Working papers 766, Banque de France.
  • Handle: RePEc:bfr:banfra:766
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    Cited by:

    1. Kox, Henk L.M., 2022. "Explaining foreign direct investment patterns: a testable micro-macro gravity model for FDI," MPRA Paper 115273, University Library of Munich, Germany.
    2. Rafael Cezar & Eric Monnet, 2021. "Capital Controls and Foreign Reserves against External Shocks: Combined or Alone?," Working papers 849, Banque de France.
    3. Aymeric Ortmans & Fabien Tripier, 2020. "COVID-Induced Sovereign Risk in the Euro Area: When Did the ECB Stop the Contagion?," Working Papers 2020-11, CEPII research center.
    4. Ortmans, Aymeric & Tripier, Fabien, 2021. "COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?," European Economic Review, Elsevier, vol. 137(C).

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    More about this item

    Keywords

    Uncertainty; Asymmetric Uncertainty; FDI Flows; FDI Returns; Volatility; Multinational Firms.;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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