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Output And Interest Rate Volatility As Determinants Of Fdi, Lilia Cavallari, Stefano D'Addona

Lilia Cavallari

This paper examines the role of country-specific sources of output and interest rate volatility in driving FDI activities. Building on a dataset that comprises bilateral FDI flows among 24 OECD economies over the period 1985-2007, we find that output and interest rate volatility mainly act as push factors, i.e. they are more effective in deterring rather than encouraging foreign investments. A rise in host country volatilities does reduce the amount of FDI outflows in the recipient country, even after controlling for the state of the cycle. Source country volatilities, on the contrary, do not have a systematic effect on foreign …