Rafael Cezar, Timothée Gigout & Fabien Tripier , 2020.
"Cross-border Investments and Uncertainty Firm-level Evidence,"
CEPII Working Paper 2020- 03 , March 2020 , CEPII.
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.
Uncertainty ; Asymmetric Uncertainty ; FDI flows ; FDI Returns ; Volatility