Foreign Direct Investment And International Business Cycle Comovement

Topics:
Foreign Direct Investment
Tags:
Currency & Foreign Exchange,
European Central Bank,
Finance,
Foreign Direct Investment,
Foreign Direct Investment (FDI),
International Business,
Investment
Source:
European Central Bank

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Overview: This paper investigates the relationship between bilateral FDI (Foreign Direct Investment) positions and cross-country business cycle correlations in the period 1982 - 2001. One find a positive association between FDI linkages and output comovement, but this may partly reflect the effects of trade relations. Moreover, more intensive FDI links are also associated with a greater vulnerability to lagged output spillovers from abroad, whereas trade links are not. Policy implications of the research are: That there is an underlying tendency for business cycles to exhibit greater comovement in the future; and that policy makers need to incorporate the FDI linkage among economies in their models and analytical framework for policy analysis.

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Format: PDF | Size: 842KB | Date: Oct 2004 | Pages: 35


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