The role of US-based FDI flows for global output dynamics

Florian Huber, Manfred M. Fischer, Philipp Piribauer

Publication: Scientific journalJournal articlepeer-review

Abstract

This paper uses a global vector autoregressive (GVAR) model to analyze the relationship between FDI inflows and output dynamics in a multi-country context. The GVAR model enables us to make two important contributions: First, to model international linkages among a large number of countries, which is a key asset given the diversity of countries involved, and second, to model foreign direct investment and output dynamics jointly. The country-specific small-dimensional vector autoregressive submodels are estimated utilizing a Bayesian version of the model coupled with stochastic search variable selection priors to account for model uncertainty. Using a sample of 15 emerging and advanced economies over the period 1998:Q1 to 2012:Q4, we find that US outbound FDI exerts a positive long-term effect on output. Asian and Latin American economies tend to react faster and also stronger than Western European countries. Forecast error variance decompositions indicate that FDI plays a prominent role in explaining GDP fluctuations, especially in emerging market economies. Our findings provide evidence for policy makers to design macroeconomic policies to attract FDI inflows in the respective countries.
Original languageEnglish
Pages (from-to)943 - 973
JournalMacroeconomic Dynamics
Volume23
Issue number3
DOIs
Publication statusPublished - 2019

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 101026 Time series analysis
  • 502025 Econometrics
  • 502018 Macroeconomics

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