Openness and Diversification of Foreign Direct Investment for Export Stability Under the Global Economic Crisis: Case Study of OECD Countries

Abstract

In an integrated world, no country is free from a possible downturn in business cycles, which entails fluctuations of export growth. However, FDI seems to stabilize exports during the crisis while reaping its own benefits in all times.

With recent data from OECD countries, our new approach regarding FDI openness and diversification is introduced to draw some important policy implications for stability in export growth, and thus to economy.

First, an economy more open to FDI is stronger against an external shock to exports. Openness in both inward and outward FDI makes exports less volatile during the hardest-hit times of recession. Second, along with the FDI openness, when geographical source of inward FDI and destination of outward FDI are diversified, it can also work as a buffer to an external shock.

Keywords: FDI openness, FDI diversification, FDI under the global recession

JEL Classification: F21, F43, F44