EXCHANGE RATES AND INVESTMENT BY MULTINATIONAL CORPORATIONS: A Firm-Level Test of the Imperfect Capital Markets Result

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EXCHANGE RATES AND INVESTMENT BY MULTINATIONAL CORPORATIONS: A Firm-Level Test of the Imperfect Capital Markets Result

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Peter R. Crabb (Northwest Nazarene University)

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Peter Crabb

Abstract

The real value of the U.S. dollar and the level of U.S. foreign direct investment (FDI) have shown a strong correlation since the 1970s. Previous empirical studies on this relationship use primarily national or industry level data. This study uses firm-level data to test the hypothesis that exchange rates affect investment decisions of corporations by affecting the foreign currency value of their internal wealth. Implications from this model of firm behavior are tested using firm-level and geographically detailed data from U.S. national and multinational corporations. The results are inconsistent with the wealth effect explanation of FDI.

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Paper provided by EconWPA in its series International Trade with number 0307001.

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Date of creation: 02 Jul 2003
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Handle: RePEc:wpa:wuwpit:0307001

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

This paper has been announced in the following NEP Reports:

NEP-CFN-2003-07-13 (Corporate Finance)
NEP-RMG-2003-07-13 (Risk Management)

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Star, Spencer, 1974. "Accounting for the Growth of Output," American Economic Review, American Economic Association, vol. 64(1), pages 123-35, March. [Downloadable!] (restricted)

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