The Real Exchange Rate and Foreign Direct Investment in the United States: Relative Wealth vs. Relative Wage Effects
There has been a significant correlation between United States inward foreign direct investment and the United States real exchange rate since the 1970s. Two alternative reasons for this relationship are that the real exchange rate affects the relative cost of labor and that the real exchange rate alters relative wealth across countries. In this paper we explore these alternatives by examining the determinants of four measures of inward foreign direct investment to the United States from seven industrial countries over the period 1979 to 1991. We find strong evidence that relative wealth significantly affects U.S. inward foreign direct investment. We find no evidence that relative wages have a significant impact on the determination of U.S. foreign direct investment. These results are robust to the choice of countries in our sample and when controlling for changes in tax codes.
|Date of creation:||Oct 1992|
|Date of revision:|
|Publication status:||published as Journal of International Economics, vol. 36, no. 3/4, May 1994, p. 373|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
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.:
- Kenneth A. Froot & Jeremy C. Stein, 1989.
"Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach,"
NBER Working Papers
2914, National Bureau of Economic Research, Inc.
- Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November.
- Michael J. Boskin & William G. Gale, 1986.
"New Results on the Effects of Tax Policy on the International Location of Investment,"
NBER Working Papers
1862, National Bureau of Economic Research, Inc.
- Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc.
- Slemrod, J., 1989. "Tax Effects Of Foreign Direct Investment In The U.S.: Evidence From A Cross-Country Comparison," Working Papers 254, Research Seminar in International Economics, University of Michigan.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- Joel B. Slemrod, 1990.
"Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison,"
in: Taxation in the Global Economy, pages 79-122
National Bureau of Economic Research, Inc.
- Joel Slemrod, 1989. "Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison," NBER Working Papers 3042, National Bureau of Economic Research, Inc.
- Culem, Claudy G., 1988. "The locational determinants of direct investments among industrialized countries," European Economic Review, Elsevier, vol. 32(4), pages 885-904, April.
- Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
- Myron S. Scholes & Mark A. Wolfson, 1989.
"The Effects of Changes in Tax Laws on Corporate Reorganization Activity,"
NBER Working Papers
3095, National Bureau of Economic Research, Inc.
- Scholes, Myron S & Wolfson, Mark A, 1990. "The Effects of Changes in Tax Laws on Corporate Reorganization Activity," The Journal of Business, University of Chicago Press, vol. 63(1), pages S141-64, January.
- 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.
- Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, vol. 54(2), pages 243-266, June.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4192. 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: ()
If references are entirely missing, you can add them using this form.