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Foreign Direct Investment and International Business Cycle Comovement

  • W. Jos Jansen

    (De Nederlandsche Bank)

  • Ad C.J. Stokman

    (De Nederlandsche Bank)

This paper investigates the relationship between bilateral FDI positions and cross-country business cycle correlations in the period 1982–2001. We find that countries that have comparatively intensive FDI relations also have more synchronized business cycles during 1995–2001. Before 1995, we also find a positive association between FDI linkages and output comovement, but this may partly reflect the effects of trade relations. Moreover, more intensive FDI links are also associated with a greater vulnerability to lagged output spillovers from abroad, whereas trade links are not. Policy implications of our research are (1) that there is an underlying tendency for business cycles to exhibit greater comovement in the future, and (2) that policy makers need to incorporate the FDI linkage among economies in their models and analytical framework for policy analysis.

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File URL: http://econwpa.repec.org/eps/mac/papers/0402/0402029.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0402029.

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Length: 26 pages
Date of creation: 26 Feb 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0402029
Note: Type of Document - pdf; prepared on Windows XP; to print on HP Laser Printer, A4 page format; pages: 26; figures: Figues included. Revised version, 15 January 2004
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