Aggregate Gains of International Diversification through Foreign Direct Investment: An Inquiry into the Moderation of U.S. Business Cycles

San Vicente Portes Luis ()
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San Vicente Portes Luis: Montclair State University

Global Economy Journal, 2007, vol. 7, issue 4, 38

Abstract: Over the last 20 years the U.S. economy has experienced a strong reduction in the volatility of GDP growth. This paper documents and models the rapid growth of multinational corporations as a source of gradual decline in output and investment volatility. The paper introduces internationally diversified multinational firms into the financial accelerator framework; where international operations provide multinational firms with smoother paths of net worth that result in less volatile financing costs, investment and production. Model simulations suggest that larger multinational corporations can account for up to a 19 percent and 27 percent decline in output and investment volatility, respectively.

Keywords: foreign direct investment; international diversification; aggregate volatility; multinationals (search for similar items in EconPapers)
Date: 2007
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DOI: 10.2202/1524-5861.1284

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