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Author: Callye R. M. Masten Publisher: ProQuest ISBN: 9780549388029 Category : Foreign exchange rates Languages : en Pages :
Book Description
The determinants of foreign direct investment (FDI) have been widely examined. Previous studies have shown that exchange rates play a vital role in the analysis and are a major determinant in the flow of FDI. Most research has focused on examining how exchange rate volatility affects the economies of developed nations. However, little research has been done in understanding the impact of exchange rate volatility on FDI flows to Latin America. Developing countries lack the capital that is needed for further growth. Therefore, FDI is important to developing countries, because it allows them to gain the necessary capital. This paper examines the relationship between exchange rate volatility, political institutions and FDI flows into Latin America across two sectors: food processing, and industrial manufacturing. Empirical results show that exchange rate volatility significantly deters the flow of U.S. FDI into Latin America. Other significant economic factors are U.S. interest rates and openness to trade. Conflict and corruption are the political risk factors that have significant impacts on FDI flows. Conclusions from the paper recommend governments in Latin America to implement macroeconomic polices that promote stability, which could help reduce exchange rate volatility and lower inflation.
Author: Callye R. M. Masten Publisher: ProQuest ISBN: 9780549388029 Category : Foreign exchange rates Languages : en Pages :
Book Description
The determinants of foreign direct investment (FDI) have been widely examined. Previous studies have shown that exchange rates play a vital role in the analysis and are a major determinant in the flow of FDI. Most research has focused on examining how exchange rate volatility affects the economies of developed nations. However, little research has been done in understanding the impact of exchange rate volatility on FDI flows to Latin America. Developing countries lack the capital that is needed for further growth. Therefore, FDI is important to developing countries, because it allows them to gain the necessary capital. This paper examines the relationship between exchange rate volatility, political institutions and FDI flows into Latin America across two sectors: food processing, and industrial manufacturing. Empirical results show that exchange rate volatility significantly deters the flow of U.S. FDI into Latin America. Other significant economic factors are U.S. interest rates and openness to trade. Conflict and corruption are the political risk factors that have significant impacts on FDI flows. Conclusions from the paper recommend governments in Latin America to implement macroeconomic polices that promote stability, which could help reduce exchange rate volatility and lower inflation.
Author: Marek Hanusch Publisher: ISBN: Category : Languages : en Pages :
Book Description
Using a panel of 80 developing and developed countries for the period 1990-2015, this studyanalyses the relationship between exchange rate volatility and foreign direct investment (FDI)inflows. The results reveal a negative relationship between de facto exchange rate volatility andFDI. Reducing exchange rate volatility by 10 percent over one-year can boost FDI inflows-ceterisparibus-by an estimated 0.48 percentage points of GDP while the same reduction over the pastfive years can boost FDI inflows by 0.27 percentage points over the long-run. The results areapplied to the case of South Africa, which has been experiencing high volatility of the rand inrecent years. Reducing the rand's volatility to that of developing country peers, South Africa could boost FDI inflows by a potential of 0.25 percentage points of GDP.
Author: Mr.Joshua Aizenman Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 38
Book Description
This paper investigates the factors determining the impact of exchange rate regimes on the behavior of domestic investment and foreign direct investment (FDI). Producers may diversify internationally in order to increase the flexibility of production. We characterize the possible equilibria in a macro model that allows for the presence of a short-run Phillips curve. It is shown that a fixed exchange rate regime is more conducive to FDI relative to a flexible exchange rate, and this conclusion applies for both real and nominal shocks. If the dominant shocks are nominal (real) we will observe a negative (a positive) correlation between exchange rate volatility and the level of investment.
Author: Hisham S. Foad Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
No clear consensus exists in the existing literature on the effects of exchange rate volatility on Foreign Direct Investment (FDI). A survey of past studies on this topic yields negative, positive, and indeterminate effects. Furthermore, the impact of currency risk appears to vary across both time and location. One possible explanation for these conflicting results is that they ignore the importance of export oriented FDI. A multinational's foreign affiliate is likely to operate in both the host country and local export markets. This tendency is magnified when considering FDI within a customs union such as the EU. Ignoring local export markets creates an omitted variable bias, which could overestimate or underestimate the effects of exchange rate volatility on FDI. Using detailed data on the operations of foreign affiliates of US multinationals across seventeen European countries from 1983 - 2002, we approach this issue in two stages. In the first stage, we obtain a measure of exports from foreign affiliates that is filtered from bilateral exchange rate volatility between the host and local export markets. This export series is then included in a dynamic panel with US to host market exchange rate volatility and a host of other FDI determinants to explain inflows of FDI from the US to European countries. Potential endogeneity issues are addressed using a GMM procedure suggested by Arellano and Bond (1991). We find that the ability to export has a positive and significant effect on inflows of FDI, estimating that a 1% increase in exports as a share of total affiliate sales is associated with a $96 million increase in FDI inflows. Once foreign affiliate exports have been accounted for, we find that exchange rate volatility between the US and the host country has a significantly negative effect on the level of FDI, but an insignificant effect on inflows. Additionally, it appears that there are some unobserved features of membership in the European Monetary Union that have a significantly positive effect on inflows. Finally, we run a counterfactual experiment in which we assume that the UK had adopted the euro in 1999. Re-estimating the trade and FDI relations, we estimate that by not joining the EMU, the UK has "lost" approximately $12 billion worth of FDI from the US. While not a large loss (less that 0.1% of UK GDP), it does imply that with regard to FDI from the US, the formation of the EMU has benefited the euro-zone countries at the expense of those outside the EMU.
Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 1451977700 Category : Business & Economics Languages : en Pages : 24
Book Description
Contrary to the arguments of several scholars, we have failed to find either a conclusive theoretical case or clear empirical evidence of an effect, harmful or otherwise, of exchange rate variability (as measured by either short-term volatility or long-run misalignment) on overall levels of international trade. In this paper, after reviewing the theories and evidence on this issue, we go on to consider the impact of exchange rate variability on direct foreign investment. We summarize and amplify upon the scant theoretical literature of this issue, and proceed to test U.S. data for the presence of such an impact. We find none.
Author: Bedassa Tadesse Publisher: LAP Lambert Academic Publishing ISBN: 9783838314914 Category : Foreign exchange rates Languages : en Pages : 172
Book Description
The desire of firms' to enhance their global presence, diversify their production and the interest of policymakers to augment domestic production with more efficient foreign technology has contributed to a surge in the cross border flow of capital. By taking into account market characteristics such as market maturity and export platform status of Japanese FDI hosts during the 1990s, this dissertation examines the link between FDI, trade and exchange rate volatility. More specifically, the following questions are addressed: What induces multinational firms to reach diverse destinations? Which of the host country characteristics attract investing firms most? Are trade flows among partners related to the volume of FDI flows between them? What does the geographical distribution of FDI reflect: efficiency, technological advances, or liberalization of trade and FDI policies? Given the diminishing role of the traditional FDI driving factors (such as factor abundance and cheap labor), to what extent do market maturity, export platform status and size of the host nations matter in determining the inflow of FDI?
Author: Durairaj Kumarasamy Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
This paper investigates the impact of exchange rate levels and its volatility on Foreign Direct Investment in India using quarterly data for the period 1996:2 to 2010:1. The study employed autoregressive distributed lag (ARDL) bounds testing approach to examine the long-run and short-run relationship. Both conditional variance and other measures of volatility have been used to generate exchange rate volatility. The study also considered factors that motivate the foreign investors' decision to invest in India. The results indicated that exchange rate volatility deters FDI in India, suggesting that flexible but stable exchange rate system may be needed to successfully attract FDI inflows in India.
Author: Callye R. M. Masten
Author: Callye R. M. Masten
Author: Marek Hanusch
Author: Mr.Joshua Aizenman
Author: Hisham S. Foad
Author: International Monetary Fund
Author: Bedassa Tadesse
Author: Aklilu Gebrehiwot
Author: Linda S. Goldberg
Author: Danqing Wang
Author: Durairaj Kumarasamy