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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 & 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.
  2. Jeffrey A. Frankel and Shang-Jin Wei., 1993. "Emerging Currency Blocs," Center for International and Development Economics Research (CIDER) Working Papers C93-026, University of California at Berkeley.
  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.
  4. Jeffrey A. Frankel., 1993. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," Center for International and Development Economics Research (CIDER) Working Papers C93-007, University of California at Berkeley.
  5. Jonathan Eaton & Akiko Tamura, 1995. "Japanese and U.S. Exports and Investment as Conduits of Growth," Boston University - Institute for Economic Development 70, Boston University, Institute for Economic Development.
  6. 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.
  7. Linda Goldberg & Joseph Tracy, 2001. "Exchange rates and wages," Staff Reports 116, Federal Reserve Bank of New York.
  8. 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.
  9. 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.
  10. Yusuru Ozeki & George S. Tavlas, 1992. "The Internationalization of Currencies," IMF Occasional Papers 90, International Monetary Fund.
  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, pages 409-435.
  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. Kenneth A. Froot, 1993. "Foreign Direct Investment," NBER Books, National Bureau of Economic Research, Inc, number froo93-1, May.
  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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