International business cycle co-movement: the role of FDI

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Abstract:

This article investigates the relationship between FDI and business cycle synchronization in the period 1982 to 2011 for eight industrialized countries. We find that more synchronized business cycles are associated with stronger FDI relations in the period 1995 to 2011, but not before 1995. More intensive FDI links are also associated with a greater vulnerability to lagged output spillovers from abroad. Our findings suggest that FDI has become a separate channel through which economies may affect each other and that FDI stocks are now an essential aspect of economic interdependence.

Keywords: F21; F44; FDI; business cycle synchronization; international linkages; trade; vertical integration

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2013.844327

Affiliations: Economic Policy and Research Department, De Nederlandsche Bank, Amsterdam, The Netherlands

Publication date: February 1, 2014

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