Exchange Rate Variability and Foreign Direct Investment: Consequences of EMU Enlargement
AbstractThis paper analyzes theoretically and empirically the likely impact of the reduction in exchange rate uncertainty, due to European Monetary Union accession, on the intensity of foreign direct investment (FDI) inflow into candidate countries. Theoretical models give an ambiguous picture of how exchange rate uncertainty and volatility affect the direction and magnitude of such inflows. This paper finds that exchange rate uncertainty and volatility--and nominal exchange rate uncertainty in particular--may negatively influence the decision to locate investment in transition and accession countries. Euro adoption, on the other hand, is likely to positively influence FDI inflows in accession countries.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Eastern European Economics.
Volume (Year): 44 (2006)
Issue (Month): 1 (February)
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Other versions of this item:
- Michal Brzozowski, 2003. "Exchange Rate Variability and Foreign Direct Investment - Consequences of EMU Enlargement," CASE Network Studies and Analyses 0258, CASE-Center for Social and Economic Research.
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