Abstract

http://ssrn.com/abstract=1305658
 
 

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Financial Factors in Foreign Direct Investments: A Dynamic Analysis of International Data


Jongmoo Jay Choi


Temple University - Department of Finance; Temple University; Temple University - International Business

Bang Nam Jeon


Drexel University - Department of Economics & International Business

November 22, 2008

Research in International Business and Finance, Vol. 21, pp. 1-18, 2007

Abstract:     
In contrast to existing empirical foreign direct investment (FDI) studies that examine the static effects of strategic or real economic variables, this paper focuses on the impacts of financial variables on FDI outflows for four largest industrial countries using dynamic time series methods. The results show that FDI outflows are non-stationary but have a long-run cointegrating relationship with real exchange rates. In addition, there are causal effects of exchange rates on direct investments in the short run. Multivariate cointegration analysis shows the significance of financial channels such as cost of capital and real wealth through which the real exchange rate effects operate. The effects of financial channels are comparable to those of the real wage rate channel. Overall, the present paper provides significant and methodologically consistent international evidence for dynamic interactions between FDIs and financial variables.

Number of Pages in PDF File: 18

Keywords: FDI, real exchange rates, cost of capital, cointegration

JEL Classification: F21, F31

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Date posted: November 23, 2008  

Suggested Citation

Choi, Jongmoo Jay and Jeon, Bang Nam, Financial Factors in Foreign Direct Investments: A Dynamic Analysis of International Data (November 22, 2008). Research in International Business and Finance, Vol. 21, pp. 1-18, 2007. Available at SSRN: http://ssrn.com/abstract=1305658

Contact Information

Jongmoo Jay Choi (Contact Author)
Temple University - Department of Finance ( email ) ( email )
Fox School of Business and Management
Philadelphia, PA 19122
United States

Temple University ( email ) ( email )
Fox School of Business and Management
Philadelphia, PA 19122
United States

Temple University - International Business ( email )
Philadelphia, PA 19122
United States

Bang Nam Jeon
Drexel University - Department of Economics & International Business ( email )
3141 Chestnut St.
Philadelphia, PA 19104
United States
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