W. Jos Jansen
- 29 October 2004
- WORKING PAPER SERIES - No. 401Details
- Abstract
- This paper investigates the relationship between bilateral FDI positions and cross-country business cycle correlations in the period 1982-2001. We find that countries that have comparatively intensive FDI relations also have more synchronized business cycles during 1995-2001. Before 1995, we also 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 our research are (1) that there is an underlying tendency for business cycles to exhibit greater comovement in the future, and (2) that policy makers need to incorporate the FDI linkage among economies in their models and analytical framework for policy analysis.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
J23 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Demand
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials