Exchange Rate Strategies in the Competition for Attracting FDI
Working Paper No. 1999-16
Posted: 18 May 2000
Date Written: 1999
The choice of an exchange-rate regime is considered by integrating the determinants of multinational firms locations. We consider the case of a risk-adverse multinational firm which contemplates relocating two alternative foreign locations in order to re-export. We explicit the trade-off between price competitiveness and a stable nominal exchange rate. We also show that the firm will consider both locations as substitutes or as complements depending on whether the two exchange rates against the investing country's currency are positively or negatively correlated.
JEL Classification: F21, F23, F31, F33
Suggested Citation: Suggested Citation