Exchange Rate Strategies in the Competition for Attracting FDI
AbstractBuilding on the needs for long term capital inflows in developing countries, this paper reconsiders the choice of an exchange-rate regime by integrating the determinants of multinational firms locations. The trade-off between price competitiveness and a stable nominal exchange rate is modeled. It is shown that exchange rate volatility is detrimental to foreign direct investment and that its impact compares with misalignments. The main result is that the building of currency blocks could be a way of increasing FDI to emerging countries as a whole. The frontiers of monetary areas would then be strongly influenced by geography, as FDI is.
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Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 1999-16.
Date of creation: Dec 1999
Date of revision:
FDI; exchange rate regime; currency blocks; exchange rate policy; exchange rate; FDI;
Other versions of this item:
- Benassy-Quere, A. & Fontagne, L. & Lahreche-Revil, A., 2000. "Exchange Rate Strategies in the Competition for Attracting FDI," Papiers d'Economie MathÃÂ©matique et Applications 2000.07, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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