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Cross-border investments and uncertainty: Firm-level evidence
1 : Collège de France
Collège de France, Collège de France
2 : Centre d'Etudes Prospectives et d'Informations Internationales
(CEPII)
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Website
Centre d'analyse stratégique
3 : Université d\'Évry-Val-dÉssonne
Université d'Evry-Val d'Essonne
4 : Centre de recherche de la Banque de France
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Website
Banque de France
31 rue Croix des petits champs 75001 PARIS - France -
France
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 lower their
foreign investments. Meanwhile high-performing firms overcompensate their investments after the
initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks
among multinational firms.
