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Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment

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Author Info
Kozo Kiyota
Shujiro Urata

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Abstract

In the light of the importance of foreign direct investment (FDI) for the promotion of economic development, this paper examines the impact of the changes in the real exchange rate and its volatility on FDI. Examining Japan's FDI by industries, we found that the depreciation of the currency of the host country attracted FDI, while the high volatility of the exchange rate discouraged FDI. Our results suggest the need to avoid over-valuation of the exchange rate and to maintain stable but flexible exchange rate in order to attract FDI. Copyright 2004 Blackwell Publishing Ltd.

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Publisher Info
Article provided by Blackwell Publishing in its journal The World Economy.

Volume (Year): 27 (2004)
Issue (Month): 10 (November)
Pages: 1501-1536
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Handle: RePEc:bla:worlde:v:27:y:2004:i:10:p:1501-1536

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  1. THORBECKE, Willem, 2008. "The Effect of Exchange Rate Volatility on Fragmentation in East Asia: Evidence from the Electronics Industry," Discussion papers 08016, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
    Other versions:
  2. Ni, Shawn X & Ratti, Ronald A., 2009. "Heterogeneous Parameter Uncertainty and the Timing of Investment during Crisis," Economics Discussion Papers 2009-12, Kiel Institute for the World Economy. [Downloadable!]
  3. Schmidt, Christian W. & Broll, Udo, 2008. "The effect of exchange rate risk on U.S. foreign direct investment: An empirical analysis," MPRA Paper 10713, University Library of Munich, Germany. [Downloadable!]
  4. Hayakawa, Kazunobu & Kimura, Fukunari, 2008. "The Effect of Exchange Rate Volatility on International Trade: The Implication for Production Networks in East Asia," IDE Discussion Papers 156, Institute of Developing Economies, Japan External Trade Organization(JETRO). [Downloadable!]
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