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Foreign Direct Investment and the Business Cycle: New Insights after the Great Recession

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  • Carlos Rodríguez
  • Ricardo Bustillo

Abstract

In this paper we examine how business cycles in the home country affect outward flows of FDI (OFDI). We employ a panel data set of OFDI flows for a representative sample of countries from 1970 to 2011. The findings of the regression models that we have used are consistent with the hypothesis that OFDI flows behave pro-cyclically. This is the case for different country subsamples, for different business cycle specifications and for the inclusion of other control variables as well. Beyond this main conclusion, home country interest rate and exchange rates reveal a negative effect upon OFDI flows.

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  • Carlos Rodríguez & Ricardo Bustillo, 2015. "Foreign Direct Investment and the Business Cycle: New Insights after the Great Recession," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(2), pages 136-153.
    • Handle: RePEc:prg:jnlpep:v:2015:y:2015:i:2:id:505:p:136-153
    DOI: 10.18267/j.pep.505
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    Cited by:

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    2. Petr Musil & Veronika Hedija, 2020. "Investment incentives as instrument of motivation of firms and economic stabilization," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(2), pages 578-589, December.
    3. Balaban, Suzana & Živkov, Dejan & Milenković, Ivan, 2019. "Impact of an unexplained component of real exchange rate volatility on FDI: Evidence from transition countries," Economic Systems, Elsevier, vol. 43(3).

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    More about this item

    Keywords

    foreign direct investment; real exchange rate; multinational firms; business cycles;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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