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Exchange Rates and Competition for FDI in Asia

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Author Info
Yuqing Xing
Guanghua Wan
Abstract

This paper argues that relative exchange rates between the host countries of foreign direct investment affect their competition for FDI. Specifically, if the host country currency appreciates against the source country's currency more than that of its rival, FDI inflows of the host country will decrease, while FDI inflows increase in the rival country. Using the data of Japanese FDI in nine Asian manufacturing sectors from 1981 to 2002, the paper examines the hypothesis in the context of the competition between China and ASEAN-4 (Indonesia, Malaysia, the Philippines and Thailand). Empirical results show that the relative exchange rate is a statistically significant factor that determines the relative inflows of Japanese FDI for manufacturing as a whole, and for such sub-sectors as textiles, food, electronics, transportation equipment, and others. Exchange rate policies of China and ASEAN-4 played a critical role in dynamically reshaping the geographic distribution of Japanese FDI in Asia. Copyright 2006 The Authors
Journal compilation 2006 Blackwell Publishing Ltd .

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-9701.2006.00791.x/enhancedabs
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Article provided by Blackwell Publishing in its journal World Economy.

Volume (Year): 29 (2006)
Issue (Month): 4 (04)
Pages: 419-434
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Handle: RePEc:bla:worlde:v:29:y:2006:i:4:p:419-434

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  1. Xing, Yuqing, 2007. "Foreign direct investment and China's bilateral intra-industry trade with Japan and the US," BOFIT Discussion Papers 1/2007, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  2. Cuyvers L. & Plasmans J. & Soeng R. & Van den Bulcke D., 2008. "Determinants of Foreign Direct Investment in Cambodia: Country-Specific Factor Differentials," Working Papers 2008003, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
  3. Xing, Yuqing, 2006. "Exchange rate policy and the relative distribution of FDI among host countries," BOFIT Discussion Papers 15/2006, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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