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Exchange rate changes effects on foreign direct investment


  • Roman Hušek
  • Václava Pánková


Foreign direct investment (FDI) is an important phenomenon in international economic relations. Generally, FDI is studied from the point of view of capital and technology transfers to the recipient countries while respecting a basic fact that profit is the main investor's interest. In this paper in Part 2, some representative examples of typical FDI models are presented, whereas Part 3 should justify the specification of a model which is formulated and applied in Part 4. Investors can be driven by the expectation of maximum profit which would be obtained by allocating FDI according to the exchange rate volatility, i.e. after a sudden large devaluation of the host country currency large FDI inflows will follow as future appreciation is expected. Large exchange rate shocks are described with the help of skewness. Negative skewness means that the appreciations occur more often. Reasoning of the model explaining FDI by mean, standard deviation and skewness of changes of exchange rate is provided. An application to two New EU Members and two ASEAN countries is presented using panel data and seemingly unrelated regression technique.

Suggested Citation

  • Roman Hušek & Václava Pánková, 2008. "Exchange rate changes effects on foreign direct investment," Prague Economic Papers, University of Economics, Prague, vol. 2008(2), pages 118-126.
  • Handle: RePEc:prg:jnlpep:v:2008:y:2008:i:2:id:324:p:118-126

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    Cited by:

    1. Václav Žďárek, 2009. "Moderní způsoby produkce a přímé zahraniční investice
      [Modern methods of production and foreign direct investment]
      ," Politická ekonomie, University of Economics, Prague, vol. 2009(4), pages 509-543.
    2. repec:dug:journl:y:2017:i:2:p:78-90 is not listed on IDEAS

    More about this item


    foreign direct investment; panel data; exchange rate volatility;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements


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