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Exchange Rate and Political Risks, Again

  • Gregory Clare
  • Ira N. Gang

We examine the effects of exchange rate and political risks on foreign direct investment (FDI) for multinationals. We examine FDI by U. S. firms at two levels: in all industries and on the subset of firms in manufacturing industries. When investing in developed economies, firms appear to consider past and present variation in exchange rates. When investing in less developed nations, past and present variation does not appear to weigh as heavily as present and future variation. Decreasing political risk increases FDI.

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Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 46 (2010)
Issue (Month): 3 (May)
Pages: 46-58

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Handle: RePEc:mes:emfitr:v:46:y:2010:i:3:p:46-58
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  1. Michal Brzozowski, 2006. "Exchange Rate Variability and Foreign Direct Investment: Consequences of EMU Enlargement," Eastern European Economics, M.E. Sharpe, Inc., vol. 44(1), pages 5-24, February.
  2. Cushman, David O, 1985. "Real Exchange Rate Risk, Expectations, and the Level of Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 297-308, May.
  3. Gregory Clare, 1992. "The impact of exchange rate risk on the foreign direct investment of U.S. multinational manufacturing companies," Open Economies Review, Springer, vol. 3(2), pages 143-163, June.
  4. Goldberg, Linda S. & Kolstad, Charles D., 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," Working Papers 94-23, C.V. Starr Center for Applied Economics, New York University.
  5. Gregory Clare & Ira N. Gang, 2009. "Exchange Rate and Political Risks, Again," Departmental Working Papers 200903, Rutgers University, Department of Economics.
  6. Hefeker, Carsten & Busse, Matthias, 2005. "Political Risk, Institutions and Foreign Direct Investment," HWWA Discussion Papers 315, Hamburg Institute of International Economics (HWWA).
  7. Carstensen, Kai & Toubal, Farid, 2004. "Foreign direct investment in Central and Eastern European countries: a dynamic panel analysis," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 3-22, March.
  8. Douglas Nigh, 1985. "The Effect of Political Events on United States Direct Foreign Investment: A Pooled Time-Series Cross-Sectional Analysis," Journal of International Business Studies, Palgrave Macmillan, vol. 16(1), pages 1-17, March.
  9. Marie E Wicks Kelly & George C Philippatos, 1982. "Comparative Analysis of the Foreign Investment Evaluation Practices by U.S.-Based Manufacturing Multinational Companies," Journal of International Business Studies, Palgrave Macmillan, vol. 13(3), pages 19-42, September.
  10. Biswas, Romita, 2002. "Determinants of Foreign Direct Investment," Review of Development Economics, Wiley Blackwell, vol. 6(3), pages 492-504, October.
  11. Benassy-Quere, AgnEs & Fontagne, Lionel & LahrEche-Revil, Amina, 2001. "Exchange-Rate Strategies in the Competition for Attracting Foreign Direct Investment," Journal of the Japanese and International Economies, Elsevier, vol. 15(2), pages 178-198, June.
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