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

  • Dalila NICET-CHENAF (GREThA, CNRS, UMR 5113)
  • Eric ROUGIER (GREThA, CNRS, UMR 5113)

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.

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Paper provided by Groupe de Recherche en Economie Théorique et Appliquée in its series Cahiers du GREThA with number 2012-21.

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Date of creation: 2012
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Handle: RePEc:grt:wpegrt:2012-21
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