Foreign Direct Investment Outflows and Business-cycle Fluctuations*

doi:10.1111/j.1467-9396.2007.00649.x

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Wiley InterScience

Review of International Economics

Volume 15 Issue 1, Pages 146 - 163

Published Online: 31 Jan 2007

International Economics and Finance Society

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Foreign Direct Investment Outflows and Business-cycle Fluctuations*

Miao Wang ¹ and M. C. Sunny Wong ²

¹ Marquette University, Department of Economics, Milwaukee, Wisconsin, USA
² University of San Francisco, Department of Economics, San Francisco. CA, USA

Correspondence to Wang: Marquette University, Department of Economics, 606 N. 13th St., Milwaukee, Wisconsin, 53233, USA. Tel: 414-288-7310; Fax: 414-288-5757; E-mail: grace.wang@mu.edu. Wong: University of San Francisco, Department of Economics, 2130 Fulton Street, San Francisco. CA 94117, USA. Tel: 415-422-6194; Fax: 415-422-6983; E-mail: mwong11@usfca.edu.

*We wish to thank Bruce Blonigen, Jim Granato, Steve Haynes, Melody Lo, Frank Mixon, Sandy Moore, Charles Sawyer, Len Trevino, George Georgopoulos, and the participants in the Midwest Theory and International Conference 2003, Indiana University, Bloomington, Indiana, for their comments and insights.

Abstract

This paper investigates business-cycle effects for a country's foreign direct investment (FDI) outflows. Ordinary least squares and panel regressions show that volatility in economic growth has a negative and significant impact on FDI outflows. Furthermore, we find different types of shocks have asymmetric impacts on FDI outflows. In other words, fluctuations of the same magnitude in a boom and a recession have different effects on FDI outflows. This relationship is more evident in OECD countries. We also include exchange rate volatility, lagged business-cycle measure, and control for potential endogeneity problems as robustness checks. Our findings are robust across different specifications.

DIGITAL OBJECT IDENTIFIER (DOI)

10.1111/j.1467-9396.2007.00649.x About DOI