Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment

36 Pages Posted: 22 Dec 2004

See all articles by Kozo Kiyota

Kozo Kiyota

Keio University - Keio Economic Observatory

Shujiro Urata

Waseda University-Graduate School of Asia-Pacific Studies

Abstract

In the light of the importance of foreign direct investment (FDI) for the promotion of economic development, this paper examines the impact of the changes in the real exchange rate and its volatility on FDI. Examining Japan's FDI by industries, we found that the depreciation of the currency of the host country attracted FDI, while the high volatility of the exchange rate discouraged FDI. Our results suggest the need to avoid over-valuation of the exchange rate and to maintain stable but flexible exchange rate in order to attract FDI.

Suggested Citation

Kiyota, Kozo and Urata, Shujiro, Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment. The World Economy, Vol. 27, No. 10, pp. 1501-1536, November 2004. Available at SSRN: https://ssrn.com/abstract=631298

Kozo Kiyota (Contact Author)

Keio University - Keio Economic Observatory ( email )

Mita 2-15-45, Minato-ku
Tokyo, 108-8345
Japan

Shujiro Urata

Waseda University-Graduate School of Asia-Pacific Studies ( email )

1-21-1 Nishiwaseda
Shinjuku-ku, Tokyo 169-8050
Japan

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