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Exchange Rate and Political Risks, Again

  • Gregory Clare

    ()

    (Rutgers University)

  • Ira N. Gang

    ()

    (Rutgers University)

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

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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200903.

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Length: 20 pages
Date of creation: 27 Apr 2009
Date of revision:
Handle: RePEc:rut:rutres:200903
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  1. Kai Carstensen & Farid Toubal, 2003. "Foreign Direct Investment in Central and Eastern European Countries: A Dynamic Panel Analysis," Kiel Working Papers 1143, Kiel Institute for the World Economy.
  2. 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.
  3. Linda S. Goldberg & Charles D. Kolstad, 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," NBER Working Papers 4815, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. 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.
  7. Michal Brzozowski, 2003. "Exchange Rate Variability and Foreign Direct Investment - Consequences of EMU Enlargement," CASE Network Studies and Analyses 0258, CASE-Center for Social and Economic Research.
  8. 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.
  9. Gregory Clare & Ira N. Gang, 2009. "Exchange Rate and Political Risks, Again," Departmental Working Papers 200903, Rutgers University, Department of Economics.
  10. Biswas, Romita, 2002. "Determinants of Foreign Direct Investment," Review of Development Economics, Wiley Blackwell, vol. 6(3), pages 492-504, October.
  11. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
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