Foreign direct investment and business cycle co-movements: The panel data evidence

► With a panel data approach, we investigate the role of bilateral FDI in influencing business cycle co-movements. ► FDI and trade are found to provide separate but equally important channels of international business cycle transmission. ► Industrial dissimilarity is identified as having an indirect impact on the business cycle correlation through trade and FDI. ► Industrial dissimilarity is identified as having an indirect impact on the business cycle correlation through trade and FDI.