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Export And Foreign Direct Investments In An Endogenous-Entry Model With Real And Nominal Uncertainty

  • Lilia Cavallari

    ()

    (University of Rome 3)

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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File URL: http://host.uniroma3.it/centri/crei/pubblicazioni/workingpapers2009/CREI_02_2009.pdf
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Paper provided by CREI Università degli Studi Roma Tre in its series Working Papers with number 0209.

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Length: 27 pages
Date of creation: 2009
Date of revision: 2009
Handle: RePEc:rcr:wpaper:02_09
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  9. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "New directions for stochastic open economy models," Journal of International Economics, Elsevier, vol. 50(1), pages 117-153, February.
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  12. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Working Papers 96-02, University of Washington, Department of Economics.
  13. 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.
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  15. 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.
  16. 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.
  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. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
  19. Bergin, Paul R. & Glick, Reuven & Taylor, Alan M., 2006. "Productivity, tradability, and the long-run price puzzle," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2041-2066, November.
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  22. 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.
  23. 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.
  24. 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.
  25. Andrew B. Bernard & J. Bradford Jensen, 2000. "Exporting and Productivity," Working Papers 00-07, Center for Economic Studies, U.S. Census Bureau.
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