Exchange Rates and U.S. Direct Investment into Latin America

Posted: 8 May 2008 Last revised: 11 Aug 2009

See all articles by Isabel Ruiz

Isabel Ruiz

University of Oxford - Harris Manchester College

Susan Pozo

Western Michigan University - Department of Economics

Abstract

This paper analyzes the impact of exchange rate levels and exchange rate uncertainty on U.S. foreign direct investment into Latin America. By decomposing exchange rate uncertainty into temporary (short-run) and permanent (long-run) components, we further explore whether the nature of uncertainty matters. Our empirical findings support the view that exchange rate uncertainty has a negative impact on U.S. investment flows into Latin America. Moreover, it is the persistency in uncertainty rather than transitory uncertainty that mostly deters foreign investment. In contrast, investors do not appear to be affected by discrete movements in exchange rate levels.

Keywords: Foreign Direct Investment, Exchange Rates, CGARCH, Latin America

JEL Classification: F31, F23

Suggested Citation

Ruiz, Isabel and Pozo, Susan, Exchange Rates and U.S. Direct Investment into Latin America. Journal of International Trade and Economic Development, Vol. 17, No. 3, pp. 403-430, September 2008, Available at SSRN: https://ssrn.com/abstract=1130388

Isabel Ruiz (Contact Author)

University of Oxford - Harris Manchester College ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://www.economics.ox.ac.uk/index.php/staff/ruiz/

Susan Pozo

Western Michigan University - Department of Economics ( email )

1903 West Michigan Avenue
Kalamazoo, MI 49008
United States
269-387-5553 (Phone)
269-387-5637 (Fax)

HOME PAGE: http://homepages.wmich.edu/~pozo/

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