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EXCHANGE RATES AND INVESTMENT BY MULTINATIONAL CORPORATIONS: A Firm-Level Test of the Imperfect Capital Markets Result

Author

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  • Peter R. Crabb

    (Northwest Nazarene University)

Abstract

The real value of the U.S. dollar and the level of U.S. foreign direct investment (FDI) have shown a strong correlation since the 1970s. Previous empirical studies on this relationship use primarily national or industry level data. This study uses firm-level data to test the hypothesis that exchange rates affect investment decisions of corporations by affecting the foreign currency value of their internal wealth. Implications from this model of firm behavior are tested using firm-level and geographically detailed data from U.S. national and multinational corporations. The results are inconsistent with the wealth effect explanation of FDI.

Suggested Citation

  • Peter R. Crabb, 2003. "EXCHANGE RATES AND INVESTMENT BY MULTINATIONAL CORPORATIONS: A Firm-Level Test of the Imperfect Capital Markets Result," International Trade 0307001, EconWPA.
  • Handle: RePEc:wpa:wuwpit:0307001
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    References listed on IDEAS

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    1. Star, Spencer, 1974. "Accounting for the Growth of Output," American Economic Review, American Economic Association, vol. 64(1), pages 123-135, March.
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    More about this item

    Keywords

    Multinational Firms; Foreign Exchange;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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