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Foreign Direct Investment and Exchange Rate Pass-through: Access to Foreign Markets


  • Yushi Yoshida

    () (Faculty of Economics, Kyushu Sangyo University)


We examine the effects of foreign direct investment on exchange rate pass-through. By distinguishing the purpose of foreign direct investment, different hypothesis for production subsidiary and distribution subsidiary can be tested. We are able to find a clear evidence of “power-shift” effect and “elimination” effect of distribution subsidiary, with foreign direct investment data properly constructed to capture the timing of establishment. We also obtained significant downward effect of local production, conforming to the previous research.

Suggested Citation

  • Yushi Yoshida, 2001. "Foreign Direct Investment and Exchange Rate Pass-through: Access to Foreign Markets," Discussion Papers 8, Kyushu Sangyo University, Faculty of Economics.
  • Handle: RePEc:kyu:dpaper:8

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    References listed on IDEAS

    1. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    2. Bernhofen, Daniel M. & Xu, Peng, 2000. "Exchange rates and market power: evidence from the petrochemical industry," Journal of International Economics, Elsevier, vol. 52(2), pages 283-297, December.
    3. Kadiyali, Vrinda, 1997. "Exchange rate pass-through for strategic pricing and advertising: An empirical analysis of the U.S. photographic film industry," Journal of International Economics, Elsevier, vol. 43(3-4), pages 437-461, November.
    4. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
    5. Yushi Yoshida & Shinji Takagi, 1999. "Exchange Rate Movements and Tradable Goods Prices in East Asia; An Analysis Based on Japanese Customs Data, 1988-98," IMF Working Papers 99/31, International Monetary Fund.
    6. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
    7. Gron, Anne & Swenson, Deborah L, 1996. "Incomplete Exchange-Rate Pass-Through and Imperfect Competition: The Effect of Local Production," American Economic Review, American Economic Association, vol. 86(2), pages 71-76, May.
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    More about this item


    distribution subsidiary; exchange rate pass-through; foreign direct investment;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables


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