The Cyclical Nature of North-South FDI Flows

36 Pages Posted: 3 Mar 2003

See all articles by Eduardo Levy Levy-Yeyati

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics; CEPR

Ernesto Stein

Inter-American Development Bank (IDB)

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Date Written: December 19, 2002

Abstract

In this paper, we examine how the business and interest rate cycles in developed countries affects FDI to developing countries. After aggregating flows into three big source areas (the U.S., Europe and Japan), we find FDI flows to be countercyclical with respect to both output and interest rate cycles in the first two, whereas in Japan they display either no cyclical behavior or mild procyclical behavior. This finding is consistent with the fact that FDI outflows and local investment tend to move in opposite directions during the cycles in the U.S. and Europe, reflecting investors' arbitrage among different investment opportunities. In sum, and contrary to what is usually claimed, we conclude that recessions in industrial countries are likely to increase FDI flows, particularly to those countries with close ties with the U.S. and Europe.

Keywords: Business Cycle, FDI, Foreign, Direct, Investment

JEL Classification: F21, E22, F42

Suggested Citation

Levy-Yeyati, Eduardo Levy and Panizza, Ugo and Stein, Ernesto Hugo, The Cyclical Nature of North-South FDI Flows (December 19, 2002). Available at SSRN: https://ssrn.com/abstract=366121 or http://dx.doi.org/10.2139/ssrn.366121

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

Ugo Panizza (Contact Author)

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

CEPR ( email )

London
United Kingdom

Ernesto Hugo Stein

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue, NW
Research Department
Washington, DC 20577
United States

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