Uncertainty, Flexible Exchange Rates, and Agglomeration
This paper shows that exchange rate volatility promotes agglomeration of economic activity. Under flexible rates, firms prefer to locate in large countries, where they would enjoy lower variability of sales, thus reinforcing concentration of firms in such locations. Empirical evidence on OECD countries demonstrates that for small (large) countries or currency areas, exchange rate volatility has a long-run negative (positive) effect on net inward FDI flows. Two implications arise: creating a currency area fosters agglomeration towards the area and dispersion within the area. Copyright Springer Science + Business Media, LLC 2006
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin, Philippe, 1995. "Free-riding, convergence and two-speed monetary unification in Europe," European Economic Review, Elsevier, vol. 39(7), pages 1345-1364, August.
- Diego Puga, 1996.
"The Rise and Fall of Regional Inequalities,"
CEP Discussion Papers
dp0314, Centre for Economic Performance, LSE.
- Martin, Philippe & Rogers, Carol Ann, 1995.
"Industrial location and public infrastructure,"
Journal of International Economics,
Elsevier, vol. 39(3-4), pages 335-351, November.
- Gabrielle Lipworth & Tamim Bayoumi, 1997.
"Japanese Foreign Direct Investment and Regional Trade,"
IMF Working Papers
97/103, International Monetary Fund.
- Bayoumi, Tamim & Lipworth, Gabrielle, 1998. "Japanese foreign direct investment and regional trade," Journal of Asian Economics, Elsevier, vol. 9(4), pages 581-607.
- Raul Livas Elizondo & Paul Krugman, 1992.
"Trade Policy and the Third World Metropolis,"
NBER Working Papers
4238, National Bureau of Economic Research, Inc.
- Federico TRIONFETTI, 1997. "Public Expenditure and Economic Geography," Annals of Economics and Statistics, GENES, issue 47, pages 101-120.
- Venables, Anthony J, 1996.
"Equilibrium Locations of Vertically Linked Industries,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-59, May.
- Venables, Anthony J, 1993. "Equilibrium Locations of Vertically Linked Industries," CEPR Discussion Papers 802, C.E.P.R. Discussion Papers.
- Anthony J. Venables, 1993. "Equilibrium Locations of Vertically Linked Industries," CEP Discussion Papers dp0137, Centre for Economic Performance, LSE.
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
- Timothy A Luehrman, 1990. "The Exchange Rate Exposure of a Global Competitor," Journal of International Business Studies, Palgrave Macmillan, vol. 21(2), pages 225-242, June.
When requesting a correction, please mention this item's handle: RePEc:kap:openec:v:17:y:2006:i:2:p:197-219. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.