《《Foreign direct investment and business cycle co-movements》.pdfVIP

Journal of Macroeconomics 33 (2011) 770–783 Contents lists available at SciVerse ScienceDirect Journal of Macroeconomics journal homepage: /locate/jmacro Foreign direct investment and business cycle co-movements: The panel data evidence Chih-Chiang Hsu, Jyun-Yi Wu, Ruey Yau ⇑ Department of Economics, National Central University, Taoyuan 32001, Taiwan a r t i c l e i n f o a b s t r a c t Article history: The previous literature has largely overlooked the possible channels through which foreign Received 21 October 2010 direct investment (FDI) might influence business cycle synchronization. In this study we Accepted 6 June 2011 analyze the linkages that exist among FDI, trade and industrial dissimilarity in relation Available online 17 August 2011 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 simul- JEL classification: taneous equations model with panel data are shown to be superior to the estimates E32 obtained from single equation models or simultaneous equations models with cross-sec- F10 F21 tional 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 Keywords: