Nominal and real volatility as determinants of FDI

Lilia Cavallari and Stefano d'Addona

Applied Economics, 2013, vol. 45, issue 18, 2603-2610

Abstract: This article examines the role of country-specific sources of output and interest rate or exchange rate volatility in driving Foreign Direct Investment (FDI) activities. Building on a dataset with bilateral FDI flows among 24 Organization for Economic Co-operation and Development (OECD) economies over the period 1985--2007, we find that nominal and real volatility strongly deter foreign investments. Output and exchange rate volatility matter in particular for the decision whether to invest in a foreign country in the first place. Interest rate volatility mainly influences the amount of foreign investments.

Date: 2013
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DOI: 10.1080/00036846.2012.674206

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