Foreign Direct Investment, Trade and Real Exchange Rate Linkages in Developing Countries

44 Pages Posted: 7 May 1998 Last revised: 12 May 2000

See all articles by Linda S. Goldberg

Linda S. Goldberg

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Michael W. Klein

Tufts University - The Fletcher School of Law and Diplomacy; National Bureau of Economic Research (NBER)

Date Written: December 1997

Abstract

We investigate the relationships among trade, foreign direct investment and the real exchange rate between a set of Southeast Asian and Latin American countries and both the United States and Japan. Foreign direct investment by both Japan and the United States to the Southeast Asian countries in our sample is significantly affected by bilateral real exchange rates. Also, trade between the countries in our sample and the United States and Japan is significantly affected by foreign direct investment. These sets of relationships, between the real exchange rate and foreign direct investment, and between foreign direct investment and trade, support two channels through which the real exchange rate affects trade: a direct effect on the relative price of goods and an indirect effect through foreign direct investment.

Suggested Citation

Goldberg, Linda S. and Klein, Michael W., Foreign Direct Investment, Trade and Real Exchange Rate Linkages in Developing Countries (December 1997). NBER Working Paper No. w6344. Available at SSRN: https://ssrn.com/abstract=84068

Linda S. Goldberg (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
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212-720-2836 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

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Michael W. Klein

Tufts University - The Fletcher School of Law and Diplomacy ( email )

Medford, MA 02155
United States
617-627-2718 (Phone)
617-627-3712 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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