International Business Cycle Comovement: Trade and Foreign Direct Investment
W. Jos Jansen
De Nederlandsche Bank
Ad C.J. Stokman
De Nederlandsche Bank - Research Department
September 1, 2011
De Nederlandsche Bank Working Paper No. 319
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.
Number of Pages in PDF File: 23
Keywords: business cycle synchronization, international linkages, trade, FDI, vertical integration
JEL Classification: F21, F44working papers series
Date posted: October 11, 2011 ; Last revised: November 2, 2011
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