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Exchange Rates and U.S. Direct Investment into Latin America

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Author Info

  • Isabel Ruiz

    ()
    (Department of Economics and International Business, Sam Houston State University)

  • Susan Pozo

    ()
    (Department of Economics, Western Michigan University)

Abstract

This paper analyzes the impact of exchange rate levels and exchange rate uncertainty on U.S. foreign direct investment into Latin America. By decomposing exchange rate uncertainty into temporary (short-run) and permanent (long-run) components, we further explore whether the nature of uncertainty matters. Our empirical findings support the view that exchange rate uncertainty has a negative impact on U.S. investment flows into Latin America. Moreover, it is the persistency in uncertainty rather than transitory uncertainty that mostly deters foreign investment. In contrast, investors do not appear to be affected by discrete movements in exchange rate levels.

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File URL: http://www.shsu.edu/%7Etcq001/paper_files/wp07-01.pdf
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Bibliographic Info

Paper provided by Sam Houston State University, Department of Economics and International Business in its series Working Papers with number 0701.

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Date of creation: Mar 2007
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Handle: RePEc:shs:wpaper:0701

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Cited by:
  1. Blanco, Luisa R., 2012. "The Spatial Interdependence of FDI in Latin America," World Development, Elsevier, vol. 40(7), pages 1337-1351.
  2. Maroula Khraiche & Jeffrey Gaudette, 2013. "FDI, Exchange Rate Volatility and Financial Development: Regional Differences In Emerging Economies," Economics Bulletin, AccessEcon, vol. 33(4), pages 3143-3156.

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