IDEAS home Printed from https://ideas.repec.org/p/sgo/wpaper/2504.html
   My bibliography  Save this paper

Currency Depreciation and Firm Investment: The Capital Reshoring Channel

Author

Listed:
  • Yung Jung Kim

    (Department of Economics, Sogang University, Seoul, Korea)

  • Dong Gyun Ko

    (Department of Economics, Sogang University, Seoul, Korea)

Abstract

We introduce the capital reshoring channel as a novel mechanism through which currency depreciation can stimulate investment. Unlike traditional financial channels that emphasize balance sheet deterioration from foreign-currency liabilities, this mechanism highlights the asset side of firms’ external positions—specifically, foreign direct investment holdings. Depreciation raises the home-currency value of foreign subsidiary earnings, facilitating dividend repatriation, expanding internal liquidity, and ultimately supporting investment at home. Using Korean firm-level data from 2018–2022, we show that firms with pre-existing foreign subsidiaries experience significantly larger increases in cash flow and investment following real depreciation. This capital reshoring effect is particularly pronounced among high-technology firms, financially constrained firms, those exposed to trade conflicts, and privately held firms. Our results demonstrate that overseas assets reshape the transmission of exchange rate shocks, pointing to a previously overlooked expansionary channel of depreciation.

Suggested Citation

  • Yung Jung Kim & Dong Gyun Ko, 2025. "Currency Depreciation and Firm Investment: The Capital Reshoring Channel," Working Papers 2504, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    • Handle: RePEc:sgo:wpaper:2504
    as

    Download full text from publisher

    File URL: https://buly.kr/6Msromy
    File Function: First version, 2025
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sgo:wpaper:2504. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jung Hur (email available below). General contact details of provider: https://edirc.repec.org/data/risogkr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.