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The Effect of Currency Crises on Foreign Direct Investment Activity in Emerging Markets

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  • Soliman, Mohamed M.
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    Abstract

    Despite the ample literature on currency crises, the effect of currency crises on foreign direct investment FDI activity has been largely unexamined. This paper tests the sensitivity of three measures of U.S. outbound non-bank FDI activity to currency crises in 21 emerging economies. The findings of this analysis suggest that contrary to the common perception, currency crises do not seem to have a negative effect on FDI activity in the crisis economy. Indeed, we find some evidence that currency crises may increase FDI activity in the affected country. These results underline the stable nature of FDI relative to other types of international capital flows and as a safer mode of financing for emerging economies.

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    File URL: http://purl.umn.edu/50276
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    Bibliographic Info

    Article provided by Review of Applied Economics in its journal Review of Applied Economics.

    Volume (Year): 1 (2005)
    Issue (Month): 2 ()
    Pages:

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    Handle: RePEc:ags:reapec:50276

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    Web page: http://www.lincoln.ac.nz/story11874.html

    Related research

    Keywords: Foreign direct investment; currency crises; multinational corporations; Financial Economics; International Relations/Trade; F21; F31;

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    1. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
    2. Bruce A. Blonigen & Robert C. Feenstra, 1996. "Protectionist Threats and Foreign Direct Investment," NBER Working Papers 5475, National Bureau of Economic Research, Inc.
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    10. Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
    11. Glick, Reuven & Hutchison, Michael, 2005. "Capital controls and exchange rate instability in developing economies," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 387-412, April.
    12. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers 380, Queen's University, Department of Economics.
    13. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2002. "Estimating The Knowledge-Capital Model of the Multinational Enterprise: Comment," University of Oregon Economics Department Working Papers 2002-13, University of Oregon Economics Department, revised 01 Mar 2002.
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