The Impact of Exchange Rate on FDI and the Interdependence of FDI Over Time
Joseph D. Alba
Nanyang Technological University (NTU) - Nanyang Business School
Asian Development Bank - Economic Research
Auckland University of Technology - Department of Finance
Asian Development Bank Economics Working Paper Series No. 164
The paper examines the impact of exchange rates on foreign direct investment (FDI) inflows into the United States in the context of a model that allows for the interdependence of FDI over time. Interdependence is modeled as a two-state Markov process where the two states can be interpreted as either a favorable or an unfavorable environment for FDI in an industry. Unbalanced industry-level panel data from the US wholesale trade sector are used in the analysis and yield two main results. First, the paper finds evidence that FDI is interdependent over time. Second, under a favorable FDI environment, the exchange rate.
Number of Pages in PDF File: 24
Keywords: Exchange rate, FDI, Markov, unbalanced panel
JEL Classification: F31, F21, F23working papers series
Date posted: May 21, 2010
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