TY  - JOUR
AU  - Razin,Assaf
AU  - Sadka,Efraim
AU  - Coury,Tarek
TI  - Trade Openness and Investment Instability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8827
PY  - 2002
Y2  - March 2002
UR  - http://www.nber.org/papers/w8827
L1  - http://www.nber.org/papers/w8827.pdf
N1  - Author contact info:
Assaf Razin
Department of Economics
Cornell University
Uris 422
Ithaca, NY 14853
Tel: 607/255-9625
Fax: 607/255-2818
E-Mail: ar256@cornell.edu

Efraim Sadka
Tel Aviv University
Eitan Berglas School of Economics
P.O.B. 39040
Ramat Aviv, Tel Aviv, 69978, ISRAEL
E-Mail: sadka@post.tau.ac.il
AB  - In the presence of lumpy investment  cost of adjustment, globalization may have non-conventional effects on the level of investment and its cyclical behavior. Trade openness may lead to a discrete 'jump' in the level of investment, as it may trigger a discrete change in the terms of trade. Such a shift creates a sizeable boost in aggregate investment. But trade openness may also lead to boom-bust cycles of investment (namely, multiple equilibrium) supported by self-validating expectations. In this sense globalization destabilizes the economy. There can be substantial gains from globalization in the investment-boom equilibrium. However, gains could be small, or negative, in the investment-bust equilibrium.
ER  -