Exchange Rates and Outward Foreign Direct Investment: Us FDI in Emerging Economies

11 Pages Posted: 14 Oct 2009

See all articles by Manop Udomkerdmongkol

Manop Udomkerdmongkol

University of Nottingham - School of Economics

Oliver Morrissey

University of Nottingham - Development Economics

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Abstract

This paper investigates the effect of exchange rates on US foreign direct investment (FDI) flows to a sample of 16 emerging market countries using annual panel data for the period 1990–2002. Three separate exchange rate effects are considered: the value of the local currency (a cheaper currency attracts FDI); expected changes in the exchange rate (expected devaluation implies FDI is postponed); and exchange rate volatility (discourages FDI). The results reveal a negative relationship between FDI and more expensive local currency, the expectation of local currency depreciation, and volatile exchange rates. Stable exchange rate management can be important in attracting FDI.

Suggested Citation

Udomkerdmongkol, Manop and Morrissey, Oliver and Gorg, Holger, Exchange Rates and Outward Foreign Direct Investment: Us FDI in Emerging Economies. Review of Development Economics, Vol. 13, Issue 4, pp. 754-764, November 2009, Available at SSRN: https://ssrn.com/abstract=1488512 or http://dx.doi.org/10.1111/j.1467-9361.2009.00514.x

Manop Udomkerdmongkol

University of Nottingham - School of Economics ( email )

University Park
Nottingham NG7 2RD
United Kingdom

Oliver Morrissey

University of Nottingham - Development Economics ( email )

University Park
Nottingham, NG8 1BB
United Kingdom
+44 (0)115 9515475 (Phone)
+44 (0)115 951 4159 (Fax)

Holger Gorg

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

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