Exchange Rates And Outward Foreign Direct Investment: US FDI In Emerging Economies

Download Now Free registration required

Executive Summary

The paper investigates the impact of exchange rates on US Foreign Direct Investment (FDI) flows to a sample of 16 emerging market countries using annual panel data for the period 1990-2002. Three separate exchange rate effects are considered: the value of the local currency (a cheaper currency attracts FDI); expected changes in the exchange rate (expected devaluation implies FDI is postponed); and exchange rate volatility (discourages FDI). The results reveal a negative relationship between FDI and more expensive local currency, the expectation of local currency depreciation, and volatile exchange rates. Stable exchange rate management can be important in attracting FDI.

  • Format: PDF
  • Size: 286 KB