سرمایه گذاری مستقیم خارجی و نوسانات رشد خروجی: تجزیه و تحلیل در سراسر جهان

The decades preceding the recent financial crisis and global downturn were a period of unusually mild output volatility for many developed and developing market economies. We analyse data from 85 countries and report findings consistent with the hypothesis that foreign direct investment had a stabilising effect on output during the era of the “Great Moderation”. These findings are consistent with, but not a direct test of, the theory that relates the waning of output volatility during these decades to the international diversification of net worth and a corresponding reduction in the strength of the Financial Accelerator.

The decades preceding the financial crisis and global downturn were a period of unprecedented stability for the US economy. Namely, there is considerable evidence that US GDP growth after 1984 became less volatile than in previous decades (e.g., Kim and Nelson, 1999 and McConnell and Perez-Quiros, 2000); indeed, that the contrast was sufficiently marked to characterise these changes as “The Great Moderation”, an appellation that became current around the turn of the century. Moreover, such moderation was not confined to the US; similar changes in output growth volatility have been detected for a number of other developed market economies (e.g., Dalsgaard et al., 2002, Mills and Wang, 2003 and Stock and Watson, 2003), suggesting that declining output growth volatility may have been a more general development. Most recently, Ćorić (2012), using annual GDP data, analyses growth volatility for 98 countries over the period 1961–2007, and reports: significant reduction in GDP growth volatility in almost two thirds of these countries which, according to World Bank data for 2007, account for 55% of world population and 76% of world GDP; that “volatility moderation” took place in economies at all income levels; that different countries had different turning points and so the year 1984 is not a global turning point in output growth volatility. These findings inform the question addressed by this paper; namely, why did so many countries across the world experience reduced output volatility in the decades preceding the current global downturn? Although we cannot dismiss the possibility that the explanation(s) is (are) unique for each country, consistency in findings for the US economy, a larger number of developed economies and, most recently, for economies accounting for most of the world's output suggests the possibility of some common explanation(s). New facts stimulated the search for theoretical explanation, which focussed primarily on changing volatility in the US economy. This literature includes studies which point to decrease in the frequency and severity of exogenous economic shocks, studies which consider improvements in economic policy, and studies which point to some structural change as a cause of reduced volatility (e.g., Ahmed et al., 2004, Benati and Surico, 2009, Blanchard and Simon, 2001, Canarella et al., 2010, Gali and Gambetti, 2009, Guerron-Quintana, 2009, Justiniano and Primiceri, 2008 and Stock and Watson, 2002). In contrast, in this paper we analyse changing volatility across the world focusing on the possible role of foreign direct investments (FDI) in this process. Namely, building on Bernanke, Gertler, and Girlchrist's (1999) Financial Accelerator framework, Portes (2007) develops a general equilibrium model according to which international diversification through FDI provides economic agents with a smoother time path of net worth, which results in a less volatile external finance premium and, hence, less volatile aggregate output. The Financial Accelerator describes a process by which relatively small initial economic shocks can be amplified and propagated by financial market imperfections. In a closed economy, agents' net worth has a completely domestic origin. In this case, and taking the level of capital market imperfections as given, the strength of the Financial Accelerator depends directly on the correlation between GDP changes and agents' net worth. In contrast, in an integrated open economy agents' net worth may consist of both domestic and foreign assets, in which case only part of net worth is directly influenced by domestic GDP changes, while the remaining foreign component is directly influenced by foreign GDP changes. Accordingly, by increasing the international diversification of net worth, FDI tends to reduce the volatility of output growth. Portes (2007) simulations suggest that the evolution of FDI can account for about 20% of the observed decline in US output growth volatility. Since increase in FDI is a global phenomenon (e.g., Lane & Milesi-Ferretti, 2007) rather than affecting the US specifically, we investigate this hypothesised effect of FDI on GDP growth volatility for a large number of countries.1 The paper is organised as follows. Section 2 describes the model and data. Section 3 presents the results of empirical analysis. Section 4 reports checks on the robustness of our findings. Section 5 concludes.

This paper contributes to understanding the waning of GDP growth volatility that characterised the “Great Moderation” in the decades before the global financial crisis. Previous research suggests that international diversification through FDI smoothes the time path of net worth resulting in less volatile aggregate output in the US. The contribution of this paper is to construct an almost global database – 85 countries for the years 1970–2004, accounting for more than 90% of world GDP in 2004 – and then to test the hypothesis that, in recent decades, and across the world, FDI has reduced GDP growth volatility. The results from panel regression analysis do not reject this hypothesis. The estimated coefficients on FDI suggest that FDI had a negative, albeit an economically small impact on output growth volatility. Instrumental variable estimates suggest that this effect is unlikely to be driven only by endogeneity. Additional checks indicate that this finding is robust with respect to: variations in model specification and corresponding variations in sample size; an alternative measure of time-variation in GDP growth volatility; a much larger dataset constructed from overlapping periods; different estimation techniques; and that the effect of FDI on output growth volatility is unlikely to be driven by spurious regression. The evidence reported in this paper suggests that increased FDI may have contributed a small but economically relevant part of the Great Moderation. This is consistent with Portes's (2007) explanation according to which international diversification through FDI provides economic agents with a smoother time path of net worth which, in turn, results in a less volatile external finance premium, reduced financial acceleration effects and, hence, less volatile aggregate output. However, our study does not directly test for a relationship between FDI and the strength of the Financial Accelerator effect (as is well known from the literature on capital market imperfections, the external financial premium is not directly observable and cannot be tested with aggregate data). Moreover, internationalisation of net worth does not necessarily reduce the volatility of output growth. If, for example, output shocks are positively correlated internationally, because trade tends to increase output correlations, and trade opening has coincided with accumulation of FDI assets and liabilities across the world, then increased FDI would not provide economic agents with a smoother time path of net worth. Hence, we cannot dismiss the possibility that the observed relationship between FDI and output growth volatility has some other explanation. For example, the observed negative relationship between FDI and output growth volatility may be related to changes in economic structure associated with displacement of industrial production during recent decades from developed to developing countries. (The sector structure of economies can be an important determinant of their volatility; e.g., Acemoglu and Zilibotti, 1997 and Koren and Tenreyro, 2007) This process potentially can reduce output growth volatility in both groups of countries by changing their economic structure. In particular, industrialisation of developing countries increases the share of less volatile sectors in the economy – industry and services – at the expense of more volatile primary production. Conversely, deindustrialisation of developed countries may likewise increase the share of less volatile sectors in the economy – in particular, services – at the expense of relatively more volatile industrial production. Overall, more research is needed to explain the reason(s) for the negative relationship between FDI and output growth volatility. Finally, many researchers argue that the synchronisation of national business cycles is positively related to trade and financial integration (e.g., Baxter and Kouparitsas, 2005, Calderón et al., 2007 and Imbs, 2006). From this perspective, it is possible to speculate that globalisation not only enabled greater international net worth diversification through FDI but also, by increasing business cycle synchronisation, gradually reduced the stabilising effect of this diversification. If so, then reduction in the strength of financial acceleration as a cause of diminished output growth volatility, which is consistent with the main evidence reported in this paper, may have been a transient process contributing to but unable to sustain the “Great Moderation”.