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Cross-border investments and uncertainty: Firm-level evidence

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  • Cezar, Rafael
  • Gigout, Timothée
  • Tripier, Fabien

Abstract

This paper studies the impact of uncertainty on cross-border investments. We build a data-set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average effect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.

Suggested Citation

  • Cezar, Rafael & Gigout, Timothée & Tripier, Fabien, 2020. "Cross-border investments and uncertainty: Firm-level evidence," Journal of International Money and Finance, Elsevier, vol. 108(C).
    • Handle: RePEc:eee:jimfin:v:108:y:2020:i:c:s0261560620300991
    DOI: 10.1016/j.jimonfin.2020.102159
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    Cited by:

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    2. Ortmans, Aymeric & Tripier, Fabien, 2021. "COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?," European Economic Review, Elsevier, vol. 137(C).
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    4. Aymeric Ortmans & Fabien Tripier, 2020. "COVID-Induced Sovereign Risk in the Euro Area: When Did the ECB Stop the Contagion?," Working Papers 2020-11, CEPII research center.

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    More about this item

    Keywords

    Uncertainty; Asymmetric uncertainty; FDI flows; FDI returns; Volatility; Multinational firms;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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