Role of Foreign Direct Investment Stock in Business Cycle Synchronization

AbstractThe business cycle synchronization was widely discussed before the last economic crisis and now the interest in this topic revives. The majority of business cycle synchronization literature stresses the role of mutual trade and similarities among the economies, while the investment links are very often quite ignored or marginalized. The paper aims to estimate the role of continually increasing stock of foreign direct investment in synchronization of business cycles of Central European economies with business cycles of their most important trade partners. The extent of trade flows, industrial structure similarity and selected trade environment variables are used to extend the regression formula