Foreign Direct Investment and Output Growth Volatility : A Worldwide Analysis

The decades preceding the recent financial crisis and global downturn were a period ofunusually mild output volatility for many developed and developing market economies. Weanalyse data from 85 countries and report findings consistent with the hypothesis that foreigndirect investment had a stabilising effect on output during the era of the ldquo;Great Moderationrdquo;.These findings are consistent with, but not a direct test of, the theory that relates the waning ofoutput volatility during these decades to the international diversification of net worth and acorresponding reduction in the strength of the Financial Accelerator