Nominal and Real Volatility as Determinants of FDI

17 Pages Posted: 17 Feb 2011 Last revised: 25 Nov 2011

See all articles by Lilia Cavallari

Lilia Cavallari

Sapienza University of Rome - Department of Public Economics; University of Rome III - DIPES

Stefano d'Addona

University of Roma Tre

Date Written: November 25, 2011

Abstract

This paper examines the role of country-specific sources of output and interest rate or exchange rate volatility in driving FDI activities. Building on a dataset with bilateral FDI flows among 24 OECD economies over the period 1985-2007, we find that nominal and real volatility strongly deter foreign investments. Output and exchange rate volatility matter in particular for the decision whether to invest in a foreign country in the first place. Interest rate volatility mainly influences the amount of foreign investments.

Keywords: FDI, business cycle, output volatility, interest rate volatility, exchange rate volatility

JEL Classification: F21, E22, F42

Suggested Citation

Cavallari, Lilia and Cavallari, Lilia and d'Addona, Stefano, Nominal and Real Volatility as Determinants of FDI (November 25, 2011). Available at SSRN: https://ssrn.com/abstract=1761998 or http://dx.doi.org/10.2139/ssrn.1761998

Lilia Cavallari

Sapienza University of Rome - Department of Public Economics ( email )

via del Castro Laurenziano, 9
Rome, RM 00161
Italy
+39 0649766329 (Phone)
+39 064462040 (Fax)

University of Rome III - DIPES ( email )

Via Chiabrera, 199
Rome, 00145
Italy
390654085327 (Phone)
390654085282 (Fax)

Stefano D'Addona (Contact Author)

University of Roma Tre ( email )

Via Chiabrera, 199
Rome, 00145
Italy

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