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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 W. Klein

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6344.

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Date of creation: Dec 1997
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Handle: RePEc:nbr:nberwo:6344

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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.
  2. 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. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. Jeffrey A. Frankel, 1993. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," NBER Chapters, in: Regionalism and Rivalry: Japan and the United States in Pacific Asia, pages 53-88 National Bureau of Economic Research, Inc. [Downloadable!]
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  5. Jonathan Eaton & Akiko Tamura, 1995. "Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns," NBER Working Papers 4758, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Klein, Michael W. & Rosengren, Eric, 1994. "The real exchange rate and foreign direct investment in the United States : Relative wealth vs. relative wage effects," Journal of International Economics, Elsevier, vol. 36(3-4), pages 373-389, May. [Downloadable!] (restricted)
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  7. Dewenter, Kathryn L, 1995. "Do Exchange Rate Changes Drive Foreign Direct Investment?," Journal of Business, University of Chicago Press, vol. 68(3), pages 405-33, July. [Downloadable!] (restricted)
  8. George S. Tavlas & Yusuru Ozeki, 1992. "The Internationalization of Currencies: An Appraisal of the Japanese Yen," IMF Occasional Papers 90, International Monetary Fund.
  9. 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. [Downloadable!]
  10. Goldberg, Linda S & Kolstad, Charles D, 1995. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 855-73, November. [Downloadable!] (restricted)
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  11. 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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