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Article
Exports and foreign direct investments in an endogenous-entry model
Journal of Macroeconomics (2009)
  • Lilia Cavallari, University of Rome III
Abstract
Drawing on a tractable DSGE model with nominal rigidity, this paper studies the implications of firms’ entry in domestic and foreign markets for the international business cycle. The paper shows that the decision to enter a new market as well as the choice whether to invest at home or abroad depend on global monetary and productivity conditions. I find that a domestic monetary expansion might favor or deter start-up investments, depending on whether the potential entrant is a national or a multinational firm. Moreover, a structural policy change, as an increase in the degree of monetary stabilization, has a positive impact on trend investments in all sectors. Firms’ dynamics, in turn, amplifies consumption and employment spillovers in the world economy. I stress that this may have non-negligible consequences for welfare.
Keywords
  • Multinational firms,
  • FDI,
  • Firms' entry,
  • monetary policy
Disciplines
Publication Date
2009
Citation Information
Lilia Cavallari. "Exports and foreign direct investments in an endogenous-entry model" Journal of Macroeconomics (2009)
Available at: http://works.bepress.com/lilia_cavallari/9/