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Foreign Direct Investment, Trade and Real Exchange Rate Linkages in Developing Countries

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  • Linda S. Goldberg
  • Michael W. 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

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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Publication status: published as Linda S. Goldberg & Michael Klein, 1996. "Foreign direct investment, trade, and real exchange rate linkages in developing countries," Proceedings, Federal Reserve Bank of San Francisco, pages 73-100.
Handle: RePEc:nbr:nberwo:6344

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  1. Jeffrey A. Frankel and Shang-Jin Wei., 1993. "Emerging Currency Blocs," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C93-026, University of California at Berkeley.
  2. Jeffrey A. Frankel, 1992. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," NBER Working Papers 4050, National Bureau of Economic Research, Inc.
  3. Michael W. Klein & Eric S. Rosengren, 1992. "The real exchange rate and foreign direct investment in the United States: relative wealth vs. relative wage effects," Working Papers, Federal Reserve Bank of Boston 92-2, Federal Reserve Bank of Boston.
  4. Eaton Jonathan & Tamura Akiko, 1994. "Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns," Journal of the Japanese and International Economies, Elsevier, vol. 8(4), pages 478-510, December.
  5. Yusuru Ozeki & George S. Tavlas, 1992. "The Internationalization of Currencies," IMF Occasional Papers 90, International Monetary Fund.
  6. Jonathan Eaton & Akiko Tamura, 1996. "Japanese and U.S. Exports and Investment as Conduits of Growth," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 51-75 National Bureau of Economic Research, Inc.
  7. Goldberg, Linda S. & Kolstad, Charles D., 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," Working Papers, C.V. Starr Center for Applied Economics, New York University 94-23, C.V. Starr Center for Applied Economics, New York University.
  8. Linda Goldberg & Joseph Tracy, 2001. "Exchange Rates and Wages," NBER Working Papers 8137, National Bureau of Economic Research, Inc.
  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.
  10. 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, MIT Press, vol. 106(4), pages 1191-217, November.
  11. 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, Federal Reserve Bank of San Francisco, pages 409-435.
  12. Henning Bohn & Linda L. Tesar, 1996. "U.S. portfolio investment in Asian capital markets," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 43-72.
  13. Dewenter, Kathryn L, 1995. "Do Exchange Rate Changes Drive Foreign Direct Investment?," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 68(3), pages 405-33, July.
  14. Kenneth A. Froot, 1993. "Foreign Direct Investment," NBER Books, National Bureau of Economic Research, Inc, number froo93-1.
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