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Exchange Rates and Outward Foreign Direct Investment: US FDI in Emerging Economies

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Author Info

  • Manop Udomkerdmongkol
  • Oliver Morrissey
  • Holger Görg

Abstract

This paper investigates the effect 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. Copyright � 2009 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 13 (2009)
Issue (Month): 4 (November)
Pages: 754-764

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Handle: RePEc:bla:rdevec:v:13:y:2009:i:4:p:754-764

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669

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Cited by:
  1. Antonakakis, Nikolaos & Tondl, Gabriele, 2012. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian model averaging," Discussion Papers 1/12, Europa-Kolleg Hamburg, Institute for European Integration.
  2. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.

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