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

  • L. Cavallari

Drawing on a tractable DSGE model with nominal rigidity, this paper studies the implica- tions of ?rms?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 ?nd that a domes- tic monetary expansion might favor or deter start-up investments, depending on whether the potential entrant is a national or a multinational ?rm. 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, ampli?es consumption and employment spillovers in the world economy. I stress that this may have non-negligible consequences for welfare.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers Prin with number 002.

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Date of creation: Apr 2009
Date of revision:
Handle: RePEc:bol:prinwp:002
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  1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Harvard Institute of Economic Research Working Papers 2118, Harvard - Institute of Economic Research.
  2. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  3. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
  4. repec:tpr:qjecon:v:120:y:2005:i:3:p:865-915 is not listed on IDEAS
  5. Fabio Ghironi & Marc Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," 2004 Meeting Papers 451, Society for Economic Dynamics.
  6. Giancarlo Corsetti & Philippe Martin & Paolo Pesenti, 2008. "Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment," NBER Working Papers 13795, National Bureau of Economic Research, Inc.
  7. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  8. Paul R. Bergin & Reuven Glick, 2005. "Tradability, Productivity, and Understanding International Economic Integration," NBER Working Papers 11637, National Bureau of Economic Research, Inc.
  9. Paul Bergin & Reuven Glick & Alan M. Taylor, 2004. "Productivity, Tradability, and the Long-Run Price Puzzle," NBER Working Papers 10569, National Bureau of Economic Research, Inc.
  10. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  11. Timothy J. Kehoe & Kim J. Ruhl, 2006. "How Important is the New Goods Margin in International Trade?," 2006 Meeting Papers 733, Society for Economic Dynamics.
  12. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  13. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2007. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Working Papers 13199, National Bureau of Economic Research, Inc.
  14. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  15. Charles Engel, 1995. "Accounting for U.S. Real Exchange Rate Changes," NBER Working Papers 5394, National Bureau of Economic Research, Inc.
  16. Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "Financial globalization and exchange rates," LSE Research Online Documents on Economics 19926, London School of Economics and Political Science, LSE Library.
  17. Parsley, David C. & Wei, Shang-Jin, 2001. "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Elsevier, vol. 55(1), pages 87-105, October.
  18. Vivien Lewis, 2006. "Macroeconomic fluctuations and firm entry: theory and evidence," Computing in Economics and Finance 2006 112, Society for Computational Economics.
  19. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
  20. Andrew B. Bernard & J. Bradford Jensen, 1999. "Exporting and Productivity," NBER Working Papers 7135, National Bureau of Economic Research, Inc.
  21. Maurice Obstfeld & Kenneth Rogoff, 2000. "New Directions for Stochastic Open Economy Models," International Finance 0004002, EconWPA.
  22. Paul Bergin & Reuven Glick, 2005. "Endogenous Tradability andMacroeconomic Implications," Working Papers 513, University of California, Davis, Department of Economics.
  23. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.
  24. 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.
  25. Russ, Katheryn, 2004. "The Endogeneity of the Exchange Rate as a Determinant of FDI: A Model of Money, Entry, and Multinational Firms," Santa Cruz Department of Economics, Working Paper Series qt9xr4f238, Department of Economics, UC Santa Cruz.
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