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FDI and macroeconomic volatility: A close-up on the source countries

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  • Kamel ABDELLAH
  • Dalila NICET-CHENAF
  • Eric ROUGIER

Abstract

Macroeconomic determinants of FDI are seldom analyzed from the perspective of source countries, priority being given to host country characteristics. In a gravity set-up, we show that output volatility of source country has a significant adverse impact on FDI flowing to developing economies that can offset the positive effect of domestic cycles. We also find that the standard positive FDI-effect of structural reforms such as trade openness is reduced by higher output volatility levels in host countries, and that FDI coming from non-traditional sources is less reactive to output instability and macroeconomic risk than FDI coming from traditional sources.

Suggested Citation

  • Kamel ABDELLAH & Dalila NICET-CHENAF & Eric ROUGIER, 2012. "FDI and macroeconomic volatility: A close-up on the source countries," Cahiers du GREThA (2007-2019) 2012-21, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
  • Handle: RePEc:grt:wpegrt:2012-21
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    More about this item

    Keywords

    Output volatility; Inflation; FDI; gravity model; source countries; European Union; Middle East and North Africa;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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