Foreign Direct Investment and Trade in the EU: Are They Complementary or Substitute in Business Cycles Fluctuations?

Strong empirical evidence indicates the particular relevance of the phenomenon of foreign direct investment (FDI) and a widening stream of the literature is pointing out the importance of including the study of FDI in international economics analysis and, in particular, in the analysis of economic integration. In order to shed some light on the relationship between trade, foreign direct investment and the correlation of production fluctuations, we undertake an empirical investigation applying our analysis to three-digit industry level data for the manufacturing sector in Italy. The empirical results obtained indicate that the degree of Italian sector openness, measured both in term of trade flows and FDI consistence, is relevant for the level of correlation between production growth rates of Italy and the other European countries.