Evidence on the impact of exchange rate regimes on bilateral FDI flows
Purpose - The purpose of this paper is to investigate the impact of a menu of country-pair exchange rate regime combinations upon bilateral foreign direct investment (FDI) flows. Design/methodology/approach - The authors use panel data from 27 OECD and non-OECD high income countries for the period 1980 to 2003. Instrumental variable estimation of a dynamic panel model within a system generalised methods of moments framework allows us to control for both potential correlation issues and endogeneity bias. Findings - This paper finds that a currency union is the policy framework most conducive to cross-border investment. Being a member of EMU also appears to spur greater FDI flows with countries floating their currency Originality/value - The contribution is also distinguished by the comparative use of recently developed “natural” or
Volume (Year): 38 (2011)
Issue (Month): 3 (August)
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