Business Cycle Determinants of US Foreign Direct Investments

Cavallari, Lilia; d'Addona, Stefano

doi:10.2139/ssrn.2182672

Download This Paper

Open PDF in Browser

Add Paper to My Library

Business Cycle Determinants of US Foreign Direct Investments

10 Pages Posted: 1 Dec 2012

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 29, 2012

Abstract

This paper investigates the role of output fluctuations and exchange rate volatility in driving US foreign direct investments. Using a sample of 46 economies over the period 1982-2009, we provide evidence of a positive relation between US FDI and host country's cyclical conditions. Allowing for asymmetry over the business cycle, we find that the output elasticity of foreign investments is higher in booms than in recessions. An increase in exchange rate volatility, on the other hand, has a strong deterrent effect in US foreign investments. This effect is fairly stable over the cycle.

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

JEL Classification: F21, E22, F42

Suggested Citation: Suggested Citation

Cavallari, Lilia and Cavallari, Lilia and d'Addona, Stefano, Business Cycle Determinants of US Foreign Direct Investments (November 29, 2012). Available at SSRN: https://ssrn.com/abstract=2182672 or http://dx.doi.org/10.2139/ssrn.2182672