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International Business Cycle Comovement: Trade and Foreign Direct Investment

  • Jos Jansen
  • Ad Stokman

This paper investigates the relationship between foreign direct investment (FDI) and business cycle synchronization in the period 1982-2010 for eight industrialized countries. We find that more synchronized business cycles are associated with stronger FDI relations during 1995-2010, but that they are mainly associated with stronger trade linkages before 1995. More intensive FDI links are also associated with a greater vulnerability to lagged output spillovers from abroad, whereas trade links are not. Our findings suggest that FDI has become a separate channel through which economies may affect each other and that FDI stocks are now an essential aspect of economic interdependence.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 319.

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Date of creation: Sep 2011
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Handle: RePEc:dnb:dnbwpp:319
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  18. Stephen S. Golub & Dana Hajkova & Daniel Mirza & Giuseppe Nicoletti & Kwang-Yeol Yoo, 2003. "The Influence of Policies on Trade and Foreign Direct Investment," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 7-83.
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