How Does Foreign Direct Investment Really Affect Developing Countries' Growth?

Two main contributions to literature on foreign direct investment (FDI) and economic growth are made in this paper. First, the paper examines the effect of FDI on economic growth for 44 developing countries using heterogeneous panel cointegration techniques that are robust to omitted variables and endogenous regressors. The main result is that FDI has, on average, a negative effect on growth in developing countries, but there are large differences in the effect across countries. Second, a general‐to‐specific model‐selection approach is used to systematically search for country‐specific factors explaining the cross‐country differences in the growth effects of FDI. The results suggest that the cross‐country heterogeneity in the growth effect of FDI can be explained mainly by cross‐country differences in freedom from government intervention, business freedom, FDI volatility, and primary export dependence.     

Rights,governance, and foreign direct investment: an industry-level assessment

Theories of multinational enterprises emphasize that foreign direct investment (FDI) is undertaken in different industries for different reasons, yet studies of the effects of rights and governance on FDI generally rely on aggregate-level FDI data. This paper evaluates US FDI outflows to 15 industries (eight manufacturing, seven non-manufacturing) in 54 countries in a linear dynamic panel data gravity FDI model using a ‘system’ generalized method of moments estimator and several widely used rights and governance indexes. At the aggregate level, we estimate that stronger rights and governance have a positive effect on FDI, consistent with most prior studies. At the industry level, we estimate larger positive effects of rights and governance on FDI for service than manufacturing industries, particularly for the information and the finance and insurance industries.     

汇率水平与波动程度对外国直接投资的影响研究

本文首先采用外销比例指标,构建理论模型以研究汇率变动对不同类型FDI的影响,然后使用跨国数据进行实证检验,最后对人民币汇率的波动效应进行经验分析。研究表明,当东道国货币升值时,处于技术优势的跨国公司增加对外直接投资;双边实际汇率的波动程度对FDI的影响很弱,这是由于跨国公司采取了有效的汇率风险管理;由于汇率风险是影响外资企业出口的关键因素,实际有效汇率的波动程度对出口导向型FDI的影响较大;人民币升值和扩大人民币汇率的波动区间对市场导向型FDI的影响较弱,却能够显著促进出口导向型FDI。     

Foreign Direct Investment: Flows,Volatility, and the Impact on Growth*

This paper contributes to the literature on FDI and economic growth. We deviate from previous studies by introducing measures of the volatility of FDI inflows. As introduced into the model, these are predicted to have a negative effect on growth. We estimate the standard model using cross‐section, panel data, and instrumental variable techniques. Whilst all results are not entirely robust, there is a consistent finding that volatility of FDI has a negative impact on growth. The evidence for a positive effect of FDI levels on growth is not robust, nor is that for any effect of human capital.     

Fiscal Convergence, Business Cycle Volatility, and Growth

This paper analyzes the effects of fiscal convergence on business cycle volatility and growth. Using a panel of 11 EMU and 21 OECD countries and 40 years of data, we find that countries with similar government budget positions tend to have smoother business cycles. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with smoother business cycles. We also find evidence that reduced business cycle volatility through higher fiscal convergence stimulates growth. Our empirical results are economically and statistically significant, and robust.     

How Does Globalization Affect Income Inequality? A Panel Data Analysis

One of the major issues on the state of income inequality is the effect of globalization through foreign direct investment (FDI). It is well known that FDI inflows create employment opportunities for unskilled labor intensive countries. Hence, during recessionary (expansionary) periods, FDI outflows should cause an increase in a developing (developed) country’s unemployment rate, worsening income inequality. This study differs from the previous literature by employing the key variables FDI, trade volume, and GINI coefficient for a panel of three groups of countries (developed, developing, and miracle countries). We estimated panel cointegration coefficients via FM-OLS. Our results show that the effects of trade liberalization and FDI on income distribution differ for different country groups.     

The composition of capital inflows when emerging market firms face financing constraints

The composition of capital inflows to emerging market economies tends to follow a predictable dynamic pattern across the business cycle. In most emerging market economies, total inflows are pro-cyclical, with debt and portfolio equity flowing in first, followed later in the expansion by foreign direct investment (FDI). To understand the dynamic composition of these flows, we use a small open economy (SOE) framework to model the composition of capital inflows as the equilibrium outcome of emerging market firms' financing decisions. We show how costly external financing and FDI search costs generate a state contingent cost of financing such that the cheapest source of financing depends on the phase of the business cycle. In this manner, the financial frictions are able to explain the interaction between the types of flows and deliver a time-varying composition of flows, as well as other standard features of emerging market business cycles. If, as this work suggests, flows are an equilibrium outcome of firms' financing decisions, then volatility of capital inflows is not necessarily bad for an economy. Furthermore, using capital controls to shut down one type of flow and encourage another is certain to have both short- and long-run welfare implications.     

经济波动对城乡居民的间接福利效应差异研究

本文将经济波动对经济增速的负面影响引入福利损失模型,构建了量化经济波动对居民福利的间接影响模型,并采用1985-2007年全国以及28个省市区的城乡居民消费数据对异质居民在经济波动过程中承受的间接福利损失进行测度。研究结果表明,经济波动通过负面影响经济增速给居民带来了不容忽视的间接福利损失,忽略经济波动与经济增速的联系得到的福利损失估算值存在低估问题;无论是全国层面,还是省级层面,农村居民承受的间接福利损失都倾向于大于城镇居民。因此,为了切实提高居民的福利水平,中国政府应在保持经济增长的同时,更要重视保持城乡差异化经济的平稳性。     

Long-run growth and volatility: which source really matters?

The aim of the article is to analyse the relationship between long-run growth and business cycle volatility. In particular, the main purpose of this article is to identify which source of volatility is most detrimental to growth. Using cross-country data from 1970 to 2000, and several indicators of volatility (such as inflation, exchange rate, government expenditure, output and investment volatility) this article shows that although, all these measures of volatility are remarkably harmful for growth, business cycle investment volatility is the main source that hampers long-run growth. This relation is robust to different measures of business cycle, and to different sub-samples of countries.     

International Factor Mobility,Wages and Prices

This paper analyzes the joint influence of migration inflows and outward foreign direct investment (FDI) on wage bargaining. Labor migration and offshoring supported by FDI affect wage deals by changing the outside options of workers and firms. Unemployed workers may find alternative jobs either in the legal or in the illegal labor markets. Wages in this latter case are highly affected by migrants crowding this segment more than any other market. Firms may have the option of moving production partly or entirely to foreign low‐cost countries. A wage curve is designed theoretically, reflecting cross‐border labor and capital mobility, and estimated on panel data for 13 European countries over the period 1995–2013. The theoretical predictions of a joint negative effect on wages of FDI outflows and labor migration inflows are confirmed with some novel results.     

FINANCIAL MARKET INTEGRATION AND BUSINESS CYCLE VOLATILITY IN A MONETARY UNION

This paper uses a dynamic general equilibrium two‐country sticky‐price model to analyze the implications of financial market integration for the propagation of asymmetric productivity and government spending shocks in a monetary union. Financial market integration has a small effect on the propagation of these shocks if households can only trade in risk‐free bonds. However, financial market integration has a more substantial effect on the propagation of these shocks in a monetary union with a complete market for state‐contingent claims. This result indicates that it may be important to account for threshold effects in empirical analyses of the impact of financial market integration on business cycle volatility in a monetary union.     

Does integration and economic policy coordination promote business cycle synchronization in the EU?

Previous studies have discounted important factors and indirect channels that might contribute to business cycle synchronization (BCS) in the EU. We estimate the effects of market integration and economic policy coordination on bilateral business cycle correlations over the period 1995–2012 using a simultaneous equations model that takes into accounts both the endogenous relationships and unveils direct and indirect effects. The results suggest that (1) trade and FDI have a pronounced positive effect on BCS, particularly between incumbent and new EU members. (2) Rising specialization does not decouple business cycles. (3) The decline of income disparities in EU27 contributes to BCS, as converging countries develop stronger trade and FDI linkages. (4) There is strong evidence that poor fiscal discipline of EU members is a major impediment of business cycle synchronization. (5) The same argument holds true for exchange rate fluctuations that hinder BCS, particularly in EU15. Since BCS is a fundamental prerequisite and objective in an effective monetary union, the EU has to promote market integration and strengthen the common setting of economic policies.     

国际人才流入是否影响我国FDI区位选择

根据相关经验研究及理论模型可知,国际人才流入可通过降低国际贸易壁垒提高贸易自由度。利用2006-2013年中国内地29个省市面板数据,实证分析了国际人才流入对FDI区位分布的影响。结果显示,国际人才流入与地区FDI水平显著正相关,但国际人才流入对FDI区位分布的影响存在一定区域差异。同时,国际人才流入与企业经营环境及地理集聚水平之间存在某种替代效应,即国际人才流入能够在一定程度上弥补由于企业经营环境缺失和地理集聚水平低下带来的负面影响。此外,良好的企业经营环境和较高的地理集聚水平也对FDI区位分布具有重要影响。上述结论对于我国进一步提升外商直接投资国际竞争力及促进我国FDI区域分布平衡具有重要理论参考价值,同时也对其它新兴发展中国家具有启示作用。     

Vacancies and Unemployment in Australia

This article examines the extent to which the Mortensen–Pissarides model of labour market search can quantitatively match business cycle fluctuations in Australia. With productivity and job‐separation‐rate shocks, the model fails to produce substantial volatility among unemployment or vacancies, a result similar to Shimer's (2005) findings for the United States. Examining a broader range of shocks significantly increases the magnitude of business cycle fluctuations, but still only explains roughly 25 per cent of labour market volatility. The implied volatility of wages in the model is similar to that in the data and hence excessive wage flexibility is unlikely to be central to the failure of the model as claimed in the literature.     

Gender differences in the volatility of work hours and labor demand

This paper examines the role of heterogeneity in a real business cycle model, which traditionally has not fully captured the relative volatility of hours to output. Men and women have different cyclical volatilities in hours worked, which is robust to different filtering methods. This empirical regularity is used to motivate a standard RBC model augmented to allow for two different agents following Jaimovich et al. (2013). These two agents have identical utility functions, but face different elasticities of labor demand due to their different complementarities with capital. These estimated elasticities find that women are more complementary to capital. The calibrated model generates the cyclical volatility of work hours by gender and for the total hours worked that matches the U.S. data better than the traditional representative agent model. I then explore other extensions to this model including investigating the stability of the estimated labor demand elasticities and allowing for various Frisch elasticities of labor supply. This paper demonstrates that allowing for even broad levels of heterogeneity in a simple framework can increase the model’s tractability with the data. Since gender is important to explain U.S. business cycle dynamics, we need to carefully consider heterogeneity when analyzing counter-cyclical economic policy, as it may not have symmetric effects across assorted groups.     

Remittances over the business cycle: Theory and evidence

We examine the behaviour of remittances over the business cycle and their potential to act as a ‘stabilizer’ during periods of high business cycle volatility. Two main findings are reported. First, remittances are less volatile than other foreign currency flows and do not appear to systemically comove with business cycle fluctuations. Second, remittances are relatively stable even during episodes of sharp business cycle volatility, such as those associated with sudden stops and financial crises. We also provide an overview of the theoretical literature on the implications of different motives to remit for the cyclical behaviour of remittances.     

中国对外直接投资的政策动因——一个新的实证研究

全球外国直接投资在世界范围内遭受到经济和金融危机的严重影响。危机改变了外国直接投资的格局：对发展中经济体和转型期经济体的投资骤增;流入发达国家的外国直接投资同期大幅度下降。同时中国对外直接投资强劲增长,成功地成为对外直接投资的重要来源。与全球外国直接投资整体下滑之势相反,中国对外直接投资呈现出逆势增长的趋势。因此有必要从宏观经济的角度对中国对外直接投资的动因进行探讨。本文从理论和实证两个角度分析中国对外直接投资的动因,认为国民生产总值、出口、对矿产和能源进口需求、外汇储备和中国对外直接投资额之间存在长期稳定的关系,其中国家政策的影响显著,中国对外直接投资会随着对矿产和能源进口需求和外汇储备的增加而增加。     

Foreign direct investment and business cycle co-movements: The panel data evidence

The previous literature has largely overlooked the possible channels through which foreign direct investment (FDI) might influence business cycle synchronization. In this study we analyze the linkages that exist among FDI, trade and industrial dissimilarity in relation to business cycle co-movements using a panel data set taken from 77 pairs of developed countries. The error component three-stage least squares (EC3SLS) estimates from a simultaneous equations model with panel data are shown to be superior to the estimates obtained from single equation models or simultaneous equations models with cross-sectional data. Our results indicate that FDI serves as a channel of international business cycle transmission that is equally important as the channels of trade and monetary policy. On the contrary, industrial dissimilarity is identified as having an indirect impact on the business cycle correlation through trade and FDI. Furthermore, our findings suggest that in our sample FDI is of the horizontal type and tends to substitute for trade.     

Declining US output volatility and its effect on labour flow volatility: an MGARCH analysis

This article examines the impact of the level and volatility of the real exchange rate on UK foreign direct investment (FDI) inflows from the seven major countries of origin of the investment over the period 1975–2001. We use both fixed effects and dynamic generalized methods of moments (GMM) panel estimation techniques, and manufacturing data disaggregated by high and low R&D content of the sector of destination. Our results provide strong evidence that exchange rate volatility has a negative impact on FDI flows into the UK, irrespective of the sector of destination of the investment. On the other hand, the level of the real exchange rate is found to have a statistically insignificant effect on FDI after controlling for endogeneity of the regressors.     

Home country effects of foreign direct investment: From a small economy to a large economy

Previous studies on home country effects mainly focused on FDI from large developed economies to other countries. But today's super recipient is a relatively larger economy than its investors and many of these investors are not classified as “developed economies.” A simple Ak type model implies that a small and more developed country investing in a large and less developed country will experience decreases in both employment and income disparity (compared to the recipient country) as the less-developed recipient country gains the higher technology of production through FDI inflows. The empirical results for the Four Tigers (source countries) and China (recipient country) are consistent with our theoretical model of FDI outflows. We also find that FDI outflows to China decrease the ratio of exports to GDP only for small source countries, even though a higher investment in China raises the share of these countries' exports-to-China to China's total imports.