This thesis investigates why and how macroeconomic volatility in source countries interacts with their FDI outflows. The study focuses on FDI flowing out from OECD countries to less developed countries in the ASEAN region. Using a panel data encompassing 52 country-pairs over the period 1996-2011, I find a negative correlation between FDI outflows and macroeconomic volatility in source countries. More specifically the empirical results suggest an adverse relationship between inflation and output volatility (business cycles fluctuations) and FDI flows – the more macroeconomic volatility in developed economies the lesser FDI flows to less developed economies, which is explained by Keynesian theories. These findings derive from a gravity model approach, which enabled me to control for host country determinants. In order to estimate these relationships I adopted a random effects model and a tobit model. The reason behind the use of these two models derives from the different views within this branch of research because of censored FDI statistics. The thesis is inspired by Éric Rougier’s et al. work on how macroeconomic volatility in European countries interacts with FDI flows to the MENA region (2012).