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Exchange Rates and Foreign Direct Investment: The Role of Mobility


  • Ellingsen, Tore

    () (Dept. of Economics, Stockholm School of Economics)


Empirical evidence shows that a weak currency attracts foreign direct investment. Current conventional wisdom says that all firms, regardless of their nationality, should be affected equally by changes in the exchange rate, and hence that there is no simple explanation for this regularity. I show that this neutrality result holds only under the unreasonable assumption that all firms are equally mobile internaitonally, The simple explanation for the relationship between FDI and exchange rates is that, among firms located in a particular country, domestically owned firms are on average less mobile than firms owned by foreigners.

Suggested Citation

  • Ellingsen, Tore, 1995. "Exchange Rates and Foreign Direct Investment: The Role of Mobility," SSE/EFI Working Paper Series in Economics and Finance 59, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0059

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    More about this item


    Foreign direct investment; exchange rates; multinational firms; international mobility;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business


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