A1 - Rafael Cezar
A1 - Timothée Gigout
A1 - Fabien Tripier
TI - Cross-border Investments and Uncertainty Firm-level Evidence
IS - 2020-03
T3 - Working Papers
KW - Uncertainty
KW - Asymmetric Uncertainty
KW - FDI flows
KW - FDI Returns
KW - Volatility
N2 - This paper studies the impact of uncertainty on cross-border investments. We build a data-set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average effect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.
ER -