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Exchange Rates and Competition for FDI in Asia

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  • 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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Bibliographic Info

Article provided by Wiley Blackwell 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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Cited by:
  1. Matthias Busse & Carsten Hefeker & Signe Nelgen, 2010. "Foreign Direct Investment and Exchange Rate Regimes," MAGKS Papers on Economics 201015, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Axarloglou, Kostas & Kouvelis, Panos, 2007. "Hysteresis in adjusting the ownership structure of foreign subsidiaries," International Business Review, Elsevier, vol. 16(4), pages 494-506, August.
  3. Hamilton-Hart, Natasha, 2011. "Distribution, Domestic Politics and Monetary Cooperation in East Asia," ADBI Working Papers 332, Asian Development Bank Institute.
  4. Xing, Yuqing, 2007. "Foreign direct investment and China's bilateral intra-industry trade with Japan and the US," Journal of Asian Economics, Elsevier, vol. 18(4), pages 685-700, August.
  5. Michael Berlemann & Jane Tilgner, 2006. "Determinanten der Standortwahl von Unternehmen : ein Literaturüberblick," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 13(06), pages 14-24, December.
  6. Aray, Henry & Gardeazabal, Javier, 2005. "Going Multinational under Exchange Rate Uncertainty," DFAEII Working Papers 2005-05, University of the Basque Country - Department of Foundations of Economic Analysis II.
  7. Yuqing Xing, 2006. "Exchange Rate Policy and the Relative Distribution of FDI between Host Countries," Working Papers EMS_2006_10, Research Institute, International University of Japan.
  8. Nguyen Thanh Xuan & Yuqing Xing, 2006. "Foreign Direct Investment and Exports: the Experiences of Vietnam," Working Papers EMS_2006_13, Research Institute, International University of Japan.
  9. Xu, WeiGuo & Hu, DaiPing & Lei, AiZhong & Shen, HuiZhang, 2008. "FDI chaos and control in China," Research in International Business and Finance, Elsevier, vol. 22(1), pages 17-28, January.
  10. Yuqing Xing, 2008. "FDI in China: Facts and Impacts on China and the World Economy," Working Papers EMS_2008_03, Research Institute, International University of Japan.
  11. 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.
  12. Michael Berlemann & Sabine Engelmann & Matthias Göthel & Beate Grundig & Carsten Pohl & Joachim Ragnitz & Heinz Schmalholz, 2008. "Die neuen Bundesländer im internationalen Standortvergleich," ifo Dresden Studien, Ifo Institute for Economic Research at the University of Munich, number 43, October.
  13. CUYVERS, Ludo & PLASMANS, Joseph & SOENG, Reth & VAN DEN BULCKE, Daniël, 2008. "Determinants of foreign direct investment in Cambodia: Country-specific factor differentials," Working Papers 2008003, University of Antwerp, Faculty of Applied Economics.

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