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Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment

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  • Blonigen, Bruce A

Abstract

Foreign direct investment (FDI) theory and empirical studies have generated mixed support for a link between exchange rates and FDI. This paper argues that exchange rate movements may affect acquisition FDI because acquisitions involve firm-specific assets which can generate returns in currencies other than that used for purchase. Using data on Japanese acquisitions in the United States across three-digit SIC industries from 1975 to 1992, maximum-likelihood estimates from discrete dependent variable models support the hypothesis that real dollar depreciations make Japanese acquisitions more likely in U.S. industries, particularly those which more likely have firm-specific assets. Copyright 1997 by American Economic Association.

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  • Blonigen, Bruce A, 1997. "Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment," American Economic Review, American Economic Association, vol. 87(3), pages 447-465, June.
  • Handle: RePEc:aea:aecrev:v:87:y:1997:i:3:p:447-65
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