Foreign Direct Investment in Industrial R&D and Exchange Rate Uncertainty in the UK

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Foreign Direct Investment in Industrial R&D and Exchange Rate Uncertainty in the UK

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Bettina Becker ()
Stephen G. Hall ()

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Abstract

The purpose of this paper is to investigate the role of exchange rate uncertainty in determining foreign direct R&D investment into the UK. Specifically, we examine the impact of the UKs possible entry into EMU, where we exploit the fact that on entry the covariance of the Euro and sterling will rise. We estimate an econometric model of FDI in R&D, using a panel of manufacturing industries. Our results suggest that an increase in the volatility of the euro-dollar exchange rate tends to relocate R&D investment from the Euro Area into the UK. A rise in the covariance of the Euro and sterling will increase foreign direct R&D investment into the UK.

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Paper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 217.

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Date of creation: Jun 2003
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Handle: RePEc:nsr:niesrd:217

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Paper
- Bettina Becker & Stephen Hall, 2004. "Foreign direct investment in industrial R&D and exchange rate uncertainty in the UK," Money Macro and Finance (MMF) Research Group Conference 2003 4, Money Macro and Finance Research Group. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2003-06-16 (All new papers)
NEP-IFN-2003-07-21 (International Finance)
NEP-INO-2003-06-16 (Innovation)

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