Nominal and Real Volatility as Determinants of FDI

Cavallari, Lilia; d’Addona, Stefano

doi:10.2139/ssrn.1761998

Cited by 7 publications

(13 citation statements)

References 34 publications

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“…On average, US FDI outflows to non-OECD members are significantly less than those to OECD members. 10 The finding is in line with a general tendency towards an intensification of investments among "similar" economies in the last decades (UNCTAD 2011). Interestingly, the elasticity to nominal volatility is higher among OECD countries (equal to -6.06) than that among non-OECD members (equal to -1.71).…”

Section: Resultssupporting

confidence: 58%

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Business Cycle Determinants of US Foreign Direct Investments

Cavallari

d’Addona

2012

SSRN Journal

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This paper investigates the role of output fluctuations and exchange rate volatility in driving US foreign direct investments (FDI). 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 on US foreign investments. This effect is fairly stable over the business cycle.JEL classification: F21, E22, F42.

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Section: Resultssupporting

confidence: 58%

“…The finding might reflect a much higher exchange rate volatility in non-OECD countries compared to that in OECD economies. 10 The drop in the average amount of FDI is as large as 1 − …”

Section: Resultsmentioning

confidence: 99%

Business Cycle Determinants of US Foreign Direct Investments

Cavallari

d’Addona

2012

SSRN Journal

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“…These kinds of studies rely on published data about one country in relation to various countries abroad or in particular industries. They seek to establish a functional relationship between FDI and possible determinants, including the writing of Scaperlanda [1] on the effects of tariffs and customs unions, the study of Doytch and Eren [2] on institutional environment, and the paper of Cavallari and D' Addona [3] on exchange rate volatility. The third kind of research seeks to explain why FDI is preferred to other forms of investment based on different decisions of resource allocations.…”

Section: Introductionmentioning

confidence: 99%

“…Country specific characteristics are widely accepted as the main determinants of FDI, especially the factors related to the host country market, are the most examined factors regarding their influence on FDI location decisions [2,3,8]. It is generally believed that characteristics of host markets are major driving factors of FDI flows [9].…”

Section: Introductionmentioning

confidence: 99%

Systematic Literature Review of Determinants of FDI

Liu¹

2017

dtssehs

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Abstract. Review of the literature on determinants of foreign direct investment (FDI) is important in identifying and characterising why MNCs' would like to choose FDI as their main method of penetrating new market. This paper aims to offer systematical review of all possible determinants of FDI, trying to help developing countries to better understand how to attract more inward FDI, and how to facilitate domestic companies to make investment in other countries.

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“…Indeed, very few papers have tried to address the impact of the source country's macroeconomic conditions on bilateral flows. By estimating a gravity model of bilateral FDI flows between OECD economies covering the 1985-2007 period, Cavallari and D'Addona (2013) have found that FDI has tended to increase when the source country had higher output volatility. Focusing on North-South FDI, Levy-Yeyati et al (2007) have estimated a gravity model and found that FDI sourced in Europe and the United States tended to be countercyclical with respect to both output and interest rate cycles in the source country.…”

Section: Introductionmentioning

confidence: 99%

The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements

Chenaf-Nicet

Rougier

2016

International Economics

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www.gretha.fr Cahiers du GREThA 2016 -01 IDE, intégration régionale et instabilité macroéconomique: Une analyse gravitaire des pays MENA dans le cadre des accords Euro-Méditerranéens Résumé Afin de diversifier leurs risques, les entreprises confrontées à l'incertitude sur leur marché intérieur peuvent choisir d'augmenter leurs investissements à l'étranger en transférant la production vers des économies plus stables. En estimant un modèle de gravité de l'investissement direct à l'étranger (IDE) en provenance d'Europe et de la région méditerranéenne et à destination des quatre principaux bénéficiaires dans la région Afrique du Nord-Moyen-Orient (MENA) sur la période 1985-2009, cet article teste la mesure dans laquelle les entrées d'IDE sont affectées par la volatilité macroéconomique dans le pays d'origine et si les accords régionaux de commerce et d'investissement pourraient avoir augmenté la sensibilité des IDE à la volatilité macroéconomique dans le pays d'origine. Nous constatons que l'incidence de l'IDE entre deux pays augmente avec l'instabilité du PIB dans le pays source et avec la stabilité du PIB dans le pays hôte. En outre, les IDE vers les pays de la région MENA tendent à être contra-cyclique par rapport au cycle d'affaires du pays source. Nous constatons également que bien que la réactivité des IDE à l'incertitude macroéconomique des pays source ne soit pas conditionnée par des accords commerciaux et d'investissement Nord-Sud, cette réactivité devient négative pour l'intégration régionale Sud-Sud. Enfin, nous montrons que, bien que l'instabilité du pays d'origine compte certainement pour expliquer les flux bilatéraux d'IDE dans notre échantillon, son impact est plus limité lorsque les investissements sont dictés par les différentiels de coûts, ce qui est le cas pour les IDE vertical. Mots-clés : Volatilité du PIB, IDE, modèle gravitaire, Union Européenne, Afrique du nord et moyen orient, intégration régionale, traités d'investissement bilatéraux, IDE horizontal, IDE vertical The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements AbstractIn order to diversify their risks, firms facing uncertainty in their domestic market may choose to increase their investment abroad by transferring production to more stable host economies. By estimating a gravity model of foreign direct investment (FDI) flows from Europe and the Mediterranean region to the four main recipients of FDI in the Middle East and North Africa (MENA) region from 1985 to 2009, this article tests (1) the extent to which FDI inflows are affected by macroeconomic volatility in the source country and (2) whether regional trade and investment agreements could have increased this FDI sensitivity to source country's macroeconomic volatility. We find that the incidence of FDI between two countries increases with source GDP instability and with host GDP stability. Moreover, FDI to MENA countries tends to be countercyclical with respect to the source cou...

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Nominal and Real Volatility as Determinants of FDI

Cited by 7 publications

References 34 publications

Business Cycle Determinants of US Foreign Direct Investments

Business Cycle Determinants of US Foreign Direct Investments

Systematic Literature Review of Determinants of FDI

The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements

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