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Foreign direct investment, trade, and real exchange rate linkages in developing countries

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Author Info

  • Linda S. Goldberg
  • Michael Klein

Abstract

We investigate the relationships among trade, foreign direct investment and the real exchange rate between a set of Southeast Asian and Latin American countries and both the United States and Japan. Foreign direct investment by both Japan and the United States to the Southeast Asian countries in our sample is significantly affected by bilateral real exchange rates. Also, trade between the countries in our sample and the United States and Japan is significantly affected by foreign direct investment. These sets of relationships, between the real exchange rate and foreign direct investment, and between foreign direct investment and trade, support two channels through which the real exchange rate affects trade: a direct effect on the relative price of goods and an indirect effect through foreign direct investment.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (1996)
Issue (Month): ()
Pages: 73-100

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Handle: RePEc:fip:fedfpr:y:1996:p:73-100

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Keywords: Developing countries ; Investments; Foreign ; Foreign exchange ; Pacific Area;

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References

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  1. Jonathan Eaton & Akilo Tamura, 1994. "Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns," Boston University - Institute for Economic Development 48, Boston University, Institute for Economic Development.
  2. Kenneth A. Froot, 1993. "Foreign Direct Investment," NBER Books, National Bureau of Economic Research, Inc, number froo93-1, May.
  3. Jeffrey A. Frankel, 1995. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," NBER Working Papers 4050, National Bureau of Economic Research, Inc.
  4. Linda S. Goldberg & Charles D. Kolstad, 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," NBER Working Papers 4815, National Bureau of Economic Research, Inc.
  5. Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November.
  6. Michael W. Klein & Eric Rosengren, 1992. "The Real Exchange Rate and Foreign Direct Investment in the United States: Relative Wealth vs. Relative Wage Effects," NBER Working Papers 4192, National Bureau of Economic Research, Inc.
  7. Kenneth Kletzer & Mark M. Spiegel, 1996. "Speculative capital inflows and exchange rate targeting in the Pacific Basin: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, pages 409-435.
  8. Linda Goldberg & Joseph Tracy, 2001. "Exchange Rates and Wages," NBER Working Papers 8137, National Bureau of Economic Research, Inc.
  9. Jonathan Eaton & Akiko Tamura, 1996. "Japanese and U.S. Exports and Investment as Conduits of Growth," NBER Working Papers 5457, National Bureau of Economic Research, Inc.
  10. Jeffrey A. Frankel & C. Fred Bergsten & Michael L. Mussa, 1994. "Exchange Rate Policy," NBER Chapters, in: American Economic Policy in the 1980s, pages 293-366 National Bureau of Economic Research, Inc.
  11. Jeffrey A. Frankel & Shang-Jin Wei, 1993. "Emerging Currency Blocs," NBER Working Papers 4335, National Bureau of Economic Research, Inc.
  12. Dewenter, Kathryn L, 1995. "Do Exchange Rate Changes Drive Foreign Direct Investment?," The Journal of Business, University of Chicago Press, vol. 68(3), pages 405-33, July.
  13. Yusuru Ozeki & George S. Tavlas, 1992. "The Internationalization of Currencies," IMF Occasional Papers 90, International Monetary Fund.
  14. Henning Bohn & Linda L. Tesar, 1996. "U.S. portfolio investment in Asian capital markets," Proceedings, Federal Reserve Bank of San Francisco, pages 43-72.
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