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The Impact of Exchange Rate on FDI and the Interdependence of FDI over Time

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Author Info

  • D. Alba, Joseph

    (Nanyang Technological University)

  • Park, Donghyun

    (Asian Development Bank)

  • Wang, Peiming

    (Auckland University of Technology)

Abstract

The paper examines the impact of exchange rates on foreign direct investment (FDI) inflows into the United States in the context of a model that allows for the interdependence of FDI over time. Interdependence is modeled as a two-state Markov process where the two states can be interpreted as either a favorable or an unfavorable environment for FDI in an industry. Unbalanced industry-level panel data from the US wholesale trade sector are used in the analysis and yield two main results. First, the paper finds evidence that FDI is interdependent over time. Second, under a favorable FDI environment, the exchange rate has a positive and significant effect on the average rate of FDI inflows.

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File URL: http://www.adb.org/Documents/Working-Papers/2009/Economics-WP164.pdf
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Bibliographic Info

Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 164.

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Length: 22 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:ris:adbewp:0164

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Related research

Keywords: Basic research; technology creation; technology adoption; economic growth;

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Cited by:
  1. Phillips, Shauna & Ahmadi-Esfahani, Fredoun Z., . "Exchange Rates and Foreign Direct Investment: Theoretical Models and Empirical Evidence," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society.

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