This document discusses the role of exchange rates as a determinant of foreign direct investment. It begins with an overview of the theoretical literature on how exchange rates can impact a firm's decision to invest in a foreign country. Specifically, it discusses whether the firm aims to serve the local market or re-export to other countries. The document then reviews the empirical evidence from studies of other countries as well as Latin American countries. It proposes applying a model to Latin American data to analyze how both the level and variability of exchange rates determine foreign direct investment and how it relates to international trade.
Thirlwall’s law, given by the ratio of the rate of growth of exports to the income elasticity of imports is a key result of Balance of Payments (BOP) constrained long run growth models with balanced trade. Some authors have extended the analysis to incorporate long run net capital flows. We provide a critical evaluation on these efforts and propose an alternative approach to deal with long run external debt sustainability, based on two key features. First, we treat the external debt to exports ratio as the relevant indicator for the analysis of external debt sustainability. Second, we include an external credit constraint in the form of a maximum acceptable level of this ratio. The main results that emerge are that sustainable long run capital flows can positively affect the long run level of output, but not the rate of growth compatible with the BOP constraint, as exports must ultimately tend to grow at the same rate as imports. Therefore, Thirlwall’s law still holds.
Teece's 1985 paper critiques Hymer's emphasis on market power over efficiency in analyzing multinational enterprises (MNEs). Teece argues that MNEs vary in form and motivation, pursuing both efficiency and rent extraction. He identifies three issues with Hymer's analysis: it overlooks efficiency motivations for foreign direct investment, oversimplifies host country controls on MNEs, and underemphasizes dynamic considerations like how market power and efficiency roles may change over time. Empirical literature on MNE impact is mixed, with some evidence they may increase concentration more in developing countries but also spur productivity through knowledge spillovers. FDI in Latin America is heterogeneous but centered on vertical investments, with
This paper deals with the choice of the exchange rate parity upon Poland's entry to EMU. Given that the euro parity should reflect some equilibrium exchange rate, two theoretical concepts are discussed: fundamental and behavioural equilibrium exchange rates. These approaches are then estimated. According to these calculations, the zloty euro exchange rate in 2002 is not far from the level consistent with the current state of fundamentals (as indicted by BEER) and requires some depreciation to be in line with the equilibrium level of fundamentals (as indicated by FEER). The possible FEERs range between 3.88 and 4.08 zlotys per euro depending on the variant and REER definition. The results should be treated with great caution as they are demonstrated to be sensitive to the adopted assumptions and model specifications. It is argued that the range of "optimal" exchange rates is quiet wide. This stems from the fact that consequences of exchange rate misalignment depend primarily on its degree as well as due to the intrinsic uncertainty about empirical estimates of equilibrium exchange rate. Moreover, the scope for depreciation of the nominal zloty-euro exchange rate is limited by the ensuing costs to the economy, needs to meet Maastricht criteria, and political bargain.
Authored by: Łukasz Rawdanowicz
Published in 2002
Impact analysis of interest rate on the net assets of multinational businesse...Alexander Decker
This document summarizes a research study that examined the impact of interest rates on the net assets of multinational businesses in Nigeria from 1995 to 2010. A regression model was used to analyze the relationship between net asset value index and interest rates based on financial data from 7 randomly sampled multinational companies. The regression analysis showed that increases in interest rates resulted in reductions in net assets. Therefore, interest rates provide important information for multinational companies about profitability and maintaining the right debt-equity mix to remain competitive.
Artykuł podejmuje zagadnienie instytucjonalnych aspektów internacjonalizacji przedsiębiorstw. Autorzy koncentrują uwagę Czytelnika na roli, jaką odgrywają formalne instytucje
w procesach umiędzynarodowienia przedsiębiorstw, w szczególności w zakresie zagranicznych
inwestycji bezpośrednich. Celem artykułu jest prezentacja oraz próba oceny polityki wsparcia
zagranicznych inwestycji bezpośrednich wychodzących z Polski po okresie globalnego kryzysu ekonomicznego 2008. Autorzy najpierw podjęli studia literaturowe w odniesieniu do instytucjonalnych aspektów umiędzynarodowienia, następnie przeprowadzili badania jakościowe
z zastosowaniem metody wywiadu bezpośredniego z reprezentantami instytucji makro- i mezoszczebla (ministerstwo, władze regionalne, organizacje otoczenia biznesu). Wywiady pozwoliły na scharakteryzowanie podmiotowego oraz przestrzennego zorientowania polityki wsparcia zagranicznych inwestycji bezpośrednich wychodzących z Polski oraz na zasygnalizowanie
wyzwań, jakie rysują się przed tą polityką po 2008 roku. Uzyskane rezultaty stanowią punkt
wyjścia do dalszych, bardziej szczegółowych badań w przyszłości.
* Projekt badawczy: No. 11430010 Small Grants Program of the International Visegrad
Fund „Outward FDI policies in Visegrad Countries”.
This document discusses behavioral finance and how psychology influences investor behavior. It introduces several key concepts:
1) Behavioral finance augments standard finance by incorporating psychological factors into how investors make decisions. This helps explain apparent market inefficiencies.
2) Investors are "normal" rather than fully rational. They use mental accounting and make portfolio decisions based on goals rather than just risk and return.
3) Behavioral asset pricing models suggest stocks with desirable characteristics like large size and high growth have lower expected returns due to investor preferences, rather than just their risk level.
This document discusses the history and evolution of accounting standards for investments in the United States and internationally. It describes FASB Statement No. 12 from 1975, which established guidelines for accounting of trading securities using cost or market value. It then outlines FASB Statement No. 115 from 1993, which replaced No. 12 and required reporting most financial instruments at fair value. The document also discusses International Accounting Standard No. 25, which influenced Iran's standard 15, and how IAS 25 was later replaced by IAS 32 and 39 related to financial instruments.
The document discusses the role of public investment banks through examples of banks that existed in Greece and current public investment banks in Europe. It provides details on the Hellenic Industrial Development Bank and the National Bank for Investment and Industrial Development that previously operated in Greece, including their financing structures and activities. It also examines the Nordic Investment Bank, European Investment Bank, KfW Bank, and Türk Eximbank as examples of currently operating public investment banks in Europe and discusses their governance structures. The document argues that establishing a new Greek public investment bank could help finance infrastructure, SMEs, and other projects to support Greece's economic recovery.
Thirlwall’s law, given by the ratio of the rate of growth of exports to the income elasticity of imports is a key result of Balance of Payments (BOP) constrained long run growth models with balanced trade. Some authors have extended the analysis to incorporate long run net capital flows. We provide a critical evaluation on these efforts and propose an alternative approach to deal with long run external debt sustainability, based on two key features. First, we treat the external debt to exports ratio as the relevant indicator for the analysis of external debt sustainability. Second, we include an external credit constraint in the form of a maximum acceptable level of this ratio. The main results that emerge are that sustainable long run capital flows can positively affect the long run level of output, but not the rate of growth compatible with the BOP constraint, as exports must ultimately tend to grow at the same rate as imports. Therefore, Thirlwall’s law still holds.
Teece's 1985 paper critiques Hymer's emphasis on market power over efficiency in analyzing multinational enterprises (MNEs). Teece argues that MNEs vary in form and motivation, pursuing both efficiency and rent extraction. He identifies three issues with Hymer's analysis: it overlooks efficiency motivations for foreign direct investment, oversimplifies host country controls on MNEs, and underemphasizes dynamic considerations like how market power and efficiency roles may change over time. Empirical literature on MNE impact is mixed, with some evidence they may increase concentration more in developing countries but also spur productivity through knowledge spillovers. FDI in Latin America is heterogeneous but centered on vertical investments, with
This paper deals with the choice of the exchange rate parity upon Poland's entry to EMU. Given that the euro parity should reflect some equilibrium exchange rate, two theoretical concepts are discussed: fundamental and behavioural equilibrium exchange rates. These approaches are then estimated. According to these calculations, the zloty euro exchange rate in 2002 is not far from the level consistent with the current state of fundamentals (as indicted by BEER) and requires some depreciation to be in line with the equilibrium level of fundamentals (as indicated by FEER). The possible FEERs range between 3.88 and 4.08 zlotys per euro depending on the variant and REER definition. The results should be treated with great caution as they are demonstrated to be sensitive to the adopted assumptions and model specifications. It is argued that the range of "optimal" exchange rates is quiet wide. This stems from the fact that consequences of exchange rate misalignment depend primarily on its degree as well as due to the intrinsic uncertainty about empirical estimates of equilibrium exchange rate. Moreover, the scope for depreciation of the nominal zloty-euro exchange rate is limited by the ensuing costs to the economy, needs to meet Maastricht criteria, and political bargain.
Authored by: Łukasz Rawdanowicz
Published in 2002
Impact analysis of interest rate on the net assets of multinational businesse...Alexander Decker
This document summarizes a research study that examined the impact of interest rates on the net assets of multinational businesses in Nigeria from 1995 to 2010. A regression model was used to analyze the relationship between net asset value index and interest rates based on financial data from 7 randomly sampled multinational companies. The regression analysis showed that increases in interest rates resulted in reductions in net assets. Therefore, interest rates provide important information for multinational companies about profitability and maintaining the right debt-equity mix to remain competitive.
Artykuł podejmuje zagadnienie instytucjonalnych aspektów internacjonalizacji przedsiębiorstw. Autorzy koncentrują uwagę Czytelnika na roli, jaką odgrywają formalne instytucje
w procesach umiędzynarodowienia przedsiębiorstw, w szczególności w zakresie zagranicznych
inwestycji bezpośrednich. Celem artykułu jest prezentacja oraz próba oceny polityki wsparcia
zagranicznych inwestycji bezpośrednich wychodzących z Polski po okresie globalnego kryzysu ekonomicznego 2008. Autorzy najpierw podjęli studia literaturowe w odniesieniu do instytucjonalnych aspektów umiędzynarodowienia, następnie przeprowadzili badania jakościowe
z zastosowaniem metody wywiadu bezpośredniego z reprezentantami instytucji makro- i mezoszczebla (ministerstwo, władze regionalne, organizacje otoczenia biznesu). Wywiady pozwoliły na scharakteryzowanie podmiotowego oraz przestrzennego zorientowania polityki wsparcia zagranicznych inwestycji bezpośrednich wychodzących z Polski oraz na zasygnalizowanie
wyzwań, jakie rysują się przed tą polityką po 2008 roku. Uzyskane rezultaty stanowią punkt
wyjścia do dalszych, bardziej szczegółowych badań w przyszłości.
* Projekt badawczy: No. 11430010 Small Grants Program of the International Visegrad
Fund „Outward FDI policies in Visegrad Countries”.
This document discusses behavioral finance and how psychology influences investor behavior. It introduces several key concepts:
1) Behavioral finance augments standard finance by incorporating psychological factors into how investors make decisions. This helps explain apparent market inefficiencies.
2) Investors are "normal" rather than fully rational. They use mental accounting and make portfolio decisions based on goals rather than just risk and return.
3) Behavioral asset pricing models suggest stocks with desirable characteristics like large size and high growth have lower expected returns due to investor preferences, rather than just their risk level.
This document discusses the history and evolution of accounting standards for investments in the United States and internationally. It describes FASB Statement No. 12 from 1975, which established guidelines for accounting of trading securities using cost or market value. It then outlines FASB Statement No. 115 from 1993, which replaced No. 12 and required reporting most financial instruments at fair value. The document also discusses International Accounting Standard No. 25, which influenced Iran's standard 15, and how IAS 25 was later replaced by IAS 32 and 39 related to financial instruments.
The document discusses the role of public investment banks through examples of banks that existed in Greece and current public investment banks in Europe. It provides details on the Hellenic Industrial Development Bank and the National Bank for Investment and Industrial Development that previously operated in Greece, including their financing structures and activities. It also examines the Nordic Investment Bank, European Investment Bank, KfW Bank, and Türk Eximbank as examples of currently operating public investment banks in Europe and discusses their governance structures. The document argues that establishing a new Greek public investment bank could help finance infrastructure, SMEs, and other projects to support Greece's economic recovery.
The main purpose of this study is to investigate the validity of Marshall-Lerner condition and the existence of J curve for the Turkish economy. Because of transition to the floating exchange rate regime in 2001, the analyzing period has been chosen as 2003-2016 to use monthly data for the related variables. After conducting unit- root and cointegration tests, the estimated VECM results show that Marshall- Lerner condition holds for the Turkish case. On the other hand, estimated VECM produces impulse- response functions that prove the existence of J curve for the Turkish economy in the long run.
Foreign Direct Investment and its Determinants: A Study on India and Brazilinventionjournals
International trade builds up through international factor movement (IFM). IFM means movement of labour, capital and other elements of production among different country. It occurs by three ways: first one is immigration or emigration, international borrowing or lending is second way and last one is foreign direct investment (FDI). FDI means controlling ownership of a business enterprise of one country is based on entity of another country. Investment through FDI depends on various factors namely Inflation Rate, Human Development Index (HDI), Global Terrorism Index (GTI), Global Peace Index (GPI), Unemployment, Population; Corruption Perception Index (CPI), Industrial disputes etc. Object of this present study is to identify the effect of these factors on FDI inflow for India and Brazil. Also identify the more important determinants for FDI of these two countries. Ten years data (2005 to 2014) have been used for determining the result of this study. Result reveals that there exist impact of sample factors on FDI Inflow between two countries but strength of different factors varies
This document summarizes an academic paper that examines the relationship between foreign direct investment (FDI) and trade in Cambodia. It begins with information about the author and abstract of the paper. It then reviews relevant theories on whether FDI substitutes or complements trade. Prior empirical studies that generally found a complementary relationship are discussed. The document presents the author's empirical analysis using a gravity model of bilateral trade to test the relationship with Cambodia. It finds FDI complements trade based on the analysis, supporting most prior empirical work. In under 3 sentences, it provides an overview of the topic, methods, and main conclusion.
Exploring the Cultural Differences in Polish and Turkish Companiesinventionjournals
Cultural differences are of crucial importance for conducting the international business. The general regularities seem not to account for the particularities of single countries. Thus, the purpose of the present research was to study business culture in Poland and Turkey due to their strengthening position as regional leaders. The research relied on the semi-structured interviews performed in tourism companies amongst Polish and Turkish business practitioners in 2016. The data was analyzed using the thematic analysis approach. Polish entrepreneurs were found to prove more pro-transactional approach while Turkish respondents emphasized pro-partnership one. In Poland the opinion on the business partner was formulated based on his/hers competences while in Turkey the role of good manners, politeness and the knowledge of culture, art and geopolitical situation was dominant. Polish respondents claimed high punctuality while one third of Turkish stated that it is possible for their business partners to wait for them even if they have no excuse for being late. The qualitative research presented in the paper requires to be followed by the extensive quantitative one. The paper attempts to fill the gap concerning the cultural differences in conducting business in Poland and Turkey.
This document provides a summary of a case study analyzing the performance of private equity funds compared to listed equity markets. It finds that private equity has higher average annual returns (8.21% vs 6.89%) and lower volatility (9.75% standard deviation vs 17.45%) than listed markets, resulting in a better risk-return profile as measured by the Sharpe ratio. Private equity also has lower maximum drawdowns. Diversification benefits are limited as private and listed equities are highly correlated during periods of market turmoil. Over the long-term from 1986-2012, private equity exhibited lower return fluctuations and generally outperformed during periods not characterized by financial crises. A multi-factor regression model finds that private equity
Does Misaligned Currency Affect Economic Growth? – Evidence from Croatia Nicha Tatsaneeyapan
The document examines the relationship between currency misalignment and economic growth in Croatia from 2001 to 2013. It estimates the fundamental equilibrium exchange rate of the Croatian kuna using techniques like cointegration and VAR models. The findings show the kuna was undervalued from 2000 to 2007 and overvalued from 2008 to 2013. For the whole sample period, currency misalignments Granger caused GDP growth, but no causality was found for the two sub-periods. The research also finds the misalignments over this period were relatively small.
This document reviews research on the relationship between investor sentiment and stock market fluctuations. It discusses how investor sentiment can influence irrational investor behavior, though efficient market theory says stock prices fully reflect all public information. Several studies find connections between sentiment indices and stock returns, though sentiment is not a purely "financial" factor and can be driven by human psychology. The conclusion suggests incorporating sentiment into stock valuation to help analyze portfolios, while noting sentiment cannot predict events like the 2008 recession and emphasizing the need to understand how psychological factors influence human behavior and the market.
The document analyzes whether liberalization and deregulation of China's financial sector has encouraged foreign banking in the country. It examines quantitative data on foreign banks in China to determine if they have successfully entered the market. The author aims to assess if government regulations have specifically promoted foreign bank entry. While China has reformed its banking system and allowed more foreign competition, the document aims to determine if foreign banks have actually benefited and increased their presence or if reforms did not specifically target them.
This document summarizes a study on how multinational companies in India manage foreign exchange exposure. It conducted a questionnaire with 200 Indian and foreign MNCs operating in India from 2004-2008. There are three types of foreign exchange exposure - transaction, translation, and economic. Most companies face all three exposures. The study found that most companies have systems to manage exposure, and there was no significant difference between Indian and foreign MNCs in their attitudes and policies. It analyzed differences between banking and non-banking companies and differences in how companies estimate and manage transaction versus economic exposure.
This document discusses foreign direct investment (FDI) in India, specifically regarding the retail sector. It provides background on India's FDI policies over time, including fully allowing FDI in multi-brand retail in 2012. The document then reviews literature on the impacts of FDI and discusses the objectives and methodology of analyzing FDI's impact on the economy of Assam state. It outlines the Indian government's 2012 policy on multi-brand retail FDI and provides an overview of the likely positive and negative effects on India's economy and retail sector.
This document summarizes a thesis that examines the impact of official development assistance (ODA) on foreign direct investment (FDI) in Vietnam using provincial data from 1998 to 2012. The author conducts a literature review that finds mixed results on the relationship between ODA and FDI. Some studies find a positive relationship, others a negative relationship, and some no relationship. The author develops a theoretical model based on neoclassical growth theory to explain the potential relationship. An empirical model is then specified to test the impact of ODA on FDI using panel data and controlling for factors like GDP, openness, and human capital. The author hypothesizes that ODA will have a positive significant effect on FDI inflows in
The paper is concerned with the relationship between outward foreign direct investment (FDI) and domestic investment in Finland during the post-depression years of low domestic investment activity. The relationship is analysed by the use of macroeconomic data on the period from 1965 till 2006 and through the estimation of dynamic investment equations which are based on the macroeconomic framework employed by Feldstein (1994). According to the results, outward FDI decreased domestic investment activity. The relationship is a one-to-one -trade-off: one euro abroad decreases domestic investment by one euro in the long run. This result is in conformity with the results which Feldstein obtained by utilizing data on 15–18 OECD countries. The strong growth of outward FDI can therefore be regarded as the major cause of low investment activity in Finland.
Earnings Persistence of Cash Flow and Accruals - Vietnam MarketBang Vu
This thesis examines the earnings persistence of cash flow and accruals components of earnings for Vietnamese listed firms from 2000 to 2010. The author finds that:
1) Earnings persistence is higher for the cash flow component than the total accruals component, supporting previous research findings.
2) When the relative magnitude of accruals is higher than cash flow (accruals ratio >1), the difference in earnings persistence between cash flow and accruals is greater.
3) Decomposing accruals into working capital, non-current assets and financial assets accruals components, the author finds cash flow has higher persistence than each accruals component.
This document summarizes a study that analyzes and compares the performance of public sector banks and private/foreign banks in India using the CAMELS framework from 2003-2008. The CAMELS framework evaluates six factors: Capital adequacy, Asset quality, Management soundness, Earnings/profitability, Liquidity, and Sensitivity to market risk. Various financial ratios are used to evaluate each factor. The results found that private/foreign banks generally had better Capital adequacy, Management soundness, and Earnings/profitability, while public sector banks had better Asset quality and Liquidity. Overall CAMELS ratings are provided for each bank.
Investment behavior of individual investoramicable
This document discusses understanding the investment behavior of individual investors. It begins by introducing behavioral finance as a new paradigm that examines how human psychology and irrational behavior can influence financial markets, as traditional theories assume rational behavior. The document then discusses the research objectives of identifying determinants of individual investor behavior and their impact on decision making. Several theories are discussed, including the efficient market hypothesis and emergence of behavioral finance as a new paradigm. The remainder of the document outlines the theoretical framework and introduces concepts from behavioral finance like overconfidence, optimism and risk attitude that will be examined to understand their influence on individual investor decision making.
Unit 1: Environmental Context of International Business, Framework for analyzing international
business environment – Domestic, foreign and global environments and their impact on
international business decisions.
Global Trading Environment: World trade in goods and services – Major trends and developments;
World trade and protectionism – Tariff and non-tariff barriers; Counter trade.
Unit 2: International Financial Environment: Foreign investments -Pattern, Structure and effects;
Movements in foreign exchange and interest rates and then impact on trade and investment flows.
Unit 3: International Economic Institutions and Agreements: WTO, IMF, World Bank UNCTAD,
Agreement on Textiles and Clothing (ATC), GSP, GSTP and other International agreements;
International commodity trading and agreements.
Unit 4: Multinational Corporations and their involvement in International Business: Issues in
foreign investments, technology transfer, pricing and regulations; International collaborative
arrangements and strategic alliances.
Unit 5: Regional Economic Groupings in Practice: Regionalism vs. multilaterallism, Structure and
functioning of EC and NAFTA; Regional economic cooperation. Emerging Developments and
Other Issues: Growing concern for ecology; Counter trade; IT and international business.
The global pattern of foreign direct investment in recent yearsAlexander Decker
This document summarizes research on patterns of foreign direct investment (FDI) globally and factors influencing it. It discusses how FDI has shifted from developed to developing countries, especially Brazil, Russia, India, China and South Africa (BRICS). It also examines theories around why multinational corporations engage in FDI according to advantages of resources, markets, and costs. Political stability, property rights, tax policy and regulations in host countries impact FDI flows. Capital flight is another factor, as the US benefits from outflows to other nations due to the strength of the dollar.
This document presents the results of an extreme bounds analysis to identify the robust determinants of foreign direct investment. It introduces the research questions and outlines the mechanics of the EBA methodology used. The EBA results identify inflation, government final expenditure, unemployment, ratios of investment to GDP, and the current account balance as robustly related to FDI across different model specifications. The conclusion is that openness, inflation, tax rates, GDP, ratios, the current account balance, and government spending are the main determinants of FDI supported by this analysis.
The document discusses factors that determine foreign direct investment (FDI) in India, including income, exchange rates, technology, human capital, and openness of the economy. It hypothesizes that FDI is a function of these country-specific factors. The methodology section outlines a model for FDI as a function of these variables. Trend analyses show some correlation between FDI and GDP and limited correlation with exchange rates. The conclusion emphasizes that the growth, size, and openness of the Indian economy as well as currency exchange rates are important determinants of FDI inflows.
The main purpose of this study is to investigate the validity of Marshall-Lerner condition and the existence of J curve for the Turkish economy. Because of transition to the floating exchange rate regime in 2001, the analyzing period has been chosen as 2003-2016 to use monthly data for the related variables. After conducting unit- root and cointegration tests, the estimated VECM results show that Marshall- Lerner condition holds for the Turkish case. On the other hand, estimated VECM produces impulse- response functions that prove the existence of J curve for the Turkish economy in the long run.
Foreign Direct Investment and its Determinants: A Study on India and Brazilinventionjournals
International trade builds up through international factor movement (IFM). IFM means movement of labour, capital and other elements of production among different country. It occurs by three ways: first one is immigration or emigration, international borrowing or lending is second way and last one is foreign direct investment (FDI). FDI means controlling ownership of a business enterprise of one country is based on entity of another country. Investment through FDI depends on various factors namely Inflation Rate, Human Development Index (HDI), Global Terrorism Index (GTI), Global Peace Index (GPI), Unemployment, Population; Corruption Perception Index (CPI), Industrial disputes etc. Object of this present study is to identify the effect of these factors on FDI inflow for India and Brazil. Also identify the more important determinants for FDI of these two countries. Ten years data (2005 to 2014) have been used for determining the result of this study. Result reveals that there exist impact of sample factors on FDI Inflow between two countries but strength of different factors varies
This document summarizes an academic paper that examines the relationship between foreign direct investment (FDI) and trade in Cambodia. It begins with information about the author and abstract of the paper. It then reviews relevant theories on whether FDI substitutes or complements trade. Prior empirical studies that generally found a complementary relationship are discussed. The document presents the author's empirical analysis using a gravity model of bilateral trade to test the relationship with Cambodia. It finds FDI complements trade based on the analysis, supporting most prior empirical work. In under 3 sentences, it provides an overview of the topic, methods, and main conclusion.
Exploring the Cultural Differences in Polish and Turkish Companiesinventionjournals
Cultural differences are of crucial importance for conducting the international business. The general regularities seem not to account for the particularities of single countries. Thus, the purpose of the present research was to study business culture in Poland and Turkey due to their strengthening position as regional leaders. The research relied on the semi-structured interviews performed in tourism companies amongst Polish and Turkish business practitioners in 2016. The data was analyzed using the thematic analysis approach. Polish entrepreneurs were found to prove more pro-transactional approach while Turkish respondents emphasized pro-partnership one. In Poland the opinion on the business partner was formulated based on his/hers competences while in Turkey the role of good manners, politeness and the knowledge of culture, art and geopolitical situation was dominant. Polish respondents claimed high punctuality while one third of Turkish stated that it is possible for their business partners to wait for them even if they have no excuse for being late. The qualitative research presented in the paper requires to be followed by the extensive quantitative one. The paper attempts to fill the gap concerning the cultural differences in conducting business in Poland and Turkey.
This document provides a summary of a case study analyzing the performance of private equity funds compared to listed equity markets. It finds that private equity has higher average annual returns (8.21% vs 6.89%) and lower volatility (9.75% standard deviation vs 17.45%) than listed markets, resulting in a better risk-return profile as measured by the Sharpe ratio. Private equity also has lower maximum drawdowns. Diversification benefits are limited as private and listed equities are highly correlated during periods of market turmoil. Over the long-term from 1986-2012, private equity exhibited lower return fluctuations and generally outperformed during periods not characterized by financial crises. A multi-factor regression model finds that private equity
Does Misaligned Currency Affect Economic Growth? – Evidence from Croatia Nicha Tatsaneeyapan
The document examines the relationship between currency misalignment and economic growth in Croatia from 2001 to 2013. It estimates the fundamental equilibrium exchange rate of the Croatian kuna using techniques like cointegration and VAR models. The findings show the kuna was undervalued from 2000 to 2007 and overvalued from 2008 to 2013. For the whole sample period, currency misalignments Granger caused GDP growth, but no causality was found for the two sub-periods. The research also finds the misalignments over this period were relatively small.
This document reviews research on the relationship between investor sentiment and stock market fluctuations. It discusses how investor sentiment can influence irrational investor behavior, though efficient market theory says stock prices fully reflect all public information. Several studies find connections between sentiment indices and stock returns, though sentiment is not a purely "financial" factor and can be driven by human psychology. The conclusion suggests incorporating sentiment into stock valuation to help analyze portfolios, while noting sentiment cannot predict events like the 2008 recession and emphasizing the need to understand how psychological factors influence human behavior and the market.
The document analyzes whether liberalization and deregulation of China's financial sector has encouraged foreign banking in the country. It examines quantitative data on foreign banks in China to determine if they have successfully entered the market. The author aims to assess if government regulations have specifically promoted foreign bank entry. While China has reformed its banking system and allowed more foreign competition, the document aims to determine if foreign banks have actually benefited and increased their presence or if reforms did not specifically target them.
This document summarizes a study on how multinational companies in India manage foreign exchange exposure. It conducted a questionnaire with 200 Indian and foreign MNCs operating in India from 2004-2008. There are three types of foreign exchange exposure - transaction, translation, and economic. Most companies face all three exposures. The study found that most companies have systems to manage exposure, and there was no significant difference between Indian and foreign MNCs in their attitudes and policies. It analyzed differences between banking and non-banking companies and differences in how companies estimate and manage transaction versus economic exposure.
This document discusses foreign direct investment (FDI) in India, specifically regarding the retail sector. It provides background on India's FDI policies over time, including fully allowing FDI in multi-brand retail in 2012. The document then reviews literature on the impacts of FDI and discusses the objectives and methodology of analyzing FDI's impact on the economy of Assam state. It outlines the Indian government's 2012 policy on multi-brand retail FDI and provides an overview of the likely positive and negative effects on India's economy and retail sector.
This document summarizes a thesis that examines the impact of official development assistance (ODA) on foreign direct investment (FDI) in Vietnam using provincial data from 1998 to 2012. The author conducts a literature review that finds mixed results on the relationship between ODA and FDI. Some studies find a positive relationship, others a negative relationship, and some no relationship. The author develops a theoretical model based on neoclassical growth theory to explain the potential relationship. An empirical model is then specified to test the impact of ODA on FDI using panel data and controlling for factors like GDP, openness, and human capital. The author hypothesizes that ODA will have a positive significant effect on FDI inflows in
The paper is concerned with the relationship between outward foreign direct investment (FDI) and domestic investment in Finland during the post-depression years of low domestic investment activity. The relationship is analysed by the use of macroeconomic data on the period from 1965 till 2006 and through the estimation of dynamic investment equations which are based on the macroeconomic framework employed by Feldstein (1994). According to the results, outward FDI decreased domestic investment activity. The relationship is a one-to-one -trade-off: one euro abroad decreases domestic investment by one euro in the long run. This result is in conformity with the results which Feldstein obtained by utilizing data on 15–18 OECD countries. The strong growth of outward FDI can therefore be regarded as the major cause of low investment activity in Finland.
Earnings Persistence of Cash Flow and Accruals - Vietnam MarketBang Vu
This thesis examines the earnings persistence of cash flow and accruals components of earnings for Vietnamese listed firms from 2000 to 2010. The author finds that:
1) Earnings persistence is higher for the cash flow component than the total accruals component, supporting previous research findings.
2) When the relative magnitude of accruals is higher than cash flow (accruals ratio >1), the difference in earnings persistence between cash flow and accruals is greater.
3) Decomposing accruals into working capital, non-current assets and financial assets accruals components, the author finds cash flow has higher persistence than each accruals component.
This document summarizes a study that analyzes and compares the performance of public sector banks and private/foreign banks in India using the CAMELS framework from 2003-2008. The CAMELS framework evaluates six factors: Capital adequacy, Asset quality, Management soundness, Earnings/profitability, Liquidity, and Sensitivity to market risk. Various financial ratios are used to evaluate each factor. The results found that private/foreign banks generally had better Capital adequacy, Management soundness, and Earnings/profitability, while public sector banks had better Asset quality and Liquidity. Overall CAMELS ratings are provided for each bank.
Investment behavior of individual investoramicable
This document discusses understanding the investment behavior of individual investors. It begins by introducing behavioral finance as a new paradigm that examines how human psychology and irrational behavior can influence financial markets, as traditional theories assume rational behavior. The document then discusses the research objectives of identifying determinants of individual investor behavior and their impact on decision making. Several theories are discussed, including the efficient market hypothesis and emergence of behavioral finance as a new paradigm. The remainder of the document outlines the theoretical framework and introduces concepts from behavioral finance like overconfidence, optimism and risk attitude that will be examined to understand their influence on individual investor decision making.
Unit 1: Environmental Context of International Business, Framework for analyzing international
business environment – Domestic, foreign and global environments and their impact on
international business decisions.
Global Trading Environment: World trade in goods and services – Major trends and developments;
World trade and protectionism – Tariff and non-tariff barriers; Counter trade.
Unit 2: International Financial Environment: Foreign investments -Pattern, Structure and effects;
Movements in foreign exchange and interest rates and then impact on trade and investment flows.
Unit 3: International Economic Institutions and Agreements: WTO, IMF, World Bank UNCTAD,
Agreement on Textiles and Clothing (ATC), GSP, GSTP and other International agreements;
International commodity trading and agreements.
Unit 4: Multinational Corporations and their involvement in International Business: Issues in
foreign investments, technology transfer, pricing and regulations; International collaborative
arrangements and strategic alliances.
Unit 5: Regional Economic Groupings in Practice: Regionalism vs. multilaterallism, Structure and
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Other Issues: Growing concern for ecology; Counter trade; IT and international business.
The global pattern of foreign direct investment in recent yearsAlexander Decker
This document summarizes research on patterns of foreign direct investment (FDI) globally and factors influencing it. It discusses how FDI has shifted from developed to developing countries, especially Brazil, Russia, India, China and South Africa (BRICS). It also examines theories around why multinational corporations engage in FDI according to advantages of resources, markets, and costs. Political stability, property rights, tax policy and regulations in host countries impact FDI flows. Capital flight is another factor, as the US benefits from outflows to other nations due to the strength of the dollar.
This document presents the results of an extreme bounds analysis to identify the robust determinants of foreign direct investment. It introduces the research questions and outlines the mechanics of the EBA methodology used. The EBA results identify inflation, government final expenditure, unemployment, ratios of investment to GDP, and the current account balance as robustly related to FDI across different model specifications. The conclusion is that openness, inflation, tax rates, GDP, ratios, the current account balance, and government spending are the main determinants of FDI supported by this analysis.
The document discusses factors that determine foreign direct investment (FDI) in India, including income, exchange rates, technology, human capital, and openness of the economy. It hypothesizes that FDI is a function of these country-specific factors. The methodology section outlines a model for FDI as a function of these variables. Trend analyses show some correlation between FDI and GDP and limited correlation with exchange rates. The conclusion emphasizes that the growth, size, and openness of the Indian economy as well as currency exchange rates are important determinants of FDI inflows.
The Determinants of Foreign Direct Investment: A study based on country-level...Yi Zhang
This document is a master's thesis that examines the determinants of foreign direct investment (FDI) using country-level panel data. It begins with an introduction that notes the rapid growth of FDI in recent decades and outlines the research questions. A literature review then discusses previous research on potential factors that influence FDI. The paper will use regression analysis to investigate the effects of various economic, institutional and policy variables on FDI inflows. It will also include regional dummy variables to analyze differences in FDI patterns across geographic regions. The results aim to identify which factors cause variation in FDI levels among countries and how these factors impact FDI.
This document analyzes the determinants of foreign direct investment (FDI) in Malaysia's manufacturing industry from 1980-2002. It finds:
1) Malaysia received substantial FDI over this period, which was an important driver of its economic growth and industrialization.
2) An econometric analysis using cointegration and fully-modified least squares methods found that increases in education, infrastructure, market size, and current account balance led to increases in FDI, while increases in inflation and exchange rate led to decreases.
3) Major sources of FDI in Malaysia's manufacturing sector included the US, Japan, Germany, and Singapore, with electrical/electronics, petroleum, and chemicals as top recipient industries.
Understanding the Determinants and Impacts of FDI Inflows - An Indian Perspec...Jitender Barna
This document summarizes a student's research on understanding the determinants and impacts of foreign direct investment (FDI) inflows into India. The student examines various economic theories on what drives FDI and reviews previous empirical studies. The methodology section outlines how the student uses a positivist philosophy and deductive approach, collecting secondary data to conduct regression analysis and correlation tests. The findings section indicates that GDP, imports, exports, and exchange rates are significant determinants of FDI in India. While FDI is found to positively impact GDP, capital formation, imports and savings, the magnitude of impact is less than that of domestic capital formation. In conclusion, the student finds that India has not yet received sufficient FDI to significantly impact the
Determinants of Foreign Direct Investment - Socrates Majune KraidoMajune Kraido Socrates
This document presents a study on the determinants of foreign direct investment (FDI) in Kenya. It provides background information on FDI trends in Africa and East Africa, noting that Kenya was previously a top destination for FDI in the region but has since lost its appeal. The study aims to identify factors that influence FDI inflows to Kenya based on data from 1980 to 2010. It describes Kenya's efforts to attract more FDI through its long-term development plan, Vision 2030. Regression analysis is used to analyze the relationship between FDI inflows and variables like GDP growth, inflation, exchange rates, and a new factor of political instability.
Foreign direct investment good cholesterol Gignacio1
This document summarizes a working paper analyzing factors that determine the size and composition of foreign capital inflows. It finds that while total capital flows increase with development, the share of flows as foreign direct investment (FDI) decreases. Countries with weaker institutions and riskier environments attract less total capital but a higher proportion as FDI. Therefore, a rising FDI share is not necessarily a sign of economic strength. The paper aims to explain these patterns through theoretical frameworks on transaction costs and corporate finance. It concludes policies should focus on improving investment environments rather than promoting higher FDI shares, as those shares may naturally decrease as economies develop stronger markets and institutions.
Effects of Political Factors on Foreign Direct Investment flowsmitikayalew
This document discusses the effects of political factors on foreign direct investment (FDI) flows based on a review of existing literature. It finds that while economic factors are important determinants of FDI decisions, political environment and institutional quality also significantly impact FDI flows. Specifically, countries with greater political stability, transparent legal systems, and market-supporting policies tend to attract more FDI. However, the literature lacks consensus on how to define and measure political risk and institutions. The review also notes gaps in distinguishing between firm-level and country-level perspectives on FDI determinants.
This document summarizes a working paper that develops a model to explain differences between foreign direct investment (FDI) and foreign portfolio investment (FPI). The model shows that FDI investors have hands-on management that gives them better information about project productivity than FPI investors. However, FDI investors receive a lower resale price if they must sell due to "lemons problem" information asymmetry. This creates a trade-off between management efficiency and liquidity that helps explain why FDI flows are less volatile than FPI flows, especially in developing countries where information problems are larger.
Impact of Exchange rate volatility on FDI in PakistanIOSR Journals
The main objective of our study is to determine the relationship of FDI with exchange rate volatility exchange rate and inflation. There are large numbers of FDI determinants but exchange rate is one of reflective determinant. Exchange rate extremely volatile due to its frailty to adopt the changes in international and domestic investment. In our study, we use time series data for FDI, exchange rate volatility, exchange rate, government consumption and domestic credit from 1980 to 2011 for Pakistan. Different time series econometrics techniques (volatility analysis, normality test, PP, unit root test) have been used for analysis. Results demonstrate that exchange rate volatility and inflation deter FDI while exchange rate has positive relationship with it.
Site-Selection Process and Agents in FDI PromotionZoran Vaupot
In the last few decades, foreign direct investments
have grown in their importance. We have access to a rich
set of literature about FDI determinants and FDI promotion
activities.
The research about the site-selection process
conducted by foreign investors is much less abundant. We
propose an explanation to this phenomenon and possible
changes in strategic approach by combining conclusions
from existing literature concerning the topics about investment
promotion process, its stakeholders, site-selection
process, and institutional theory.
The main conclusions are that a better customer-centric orientation is needed in the whole process of FDI promotion and that the relatively neglected importance of media should be improved by putting more attention on their role according to the findings of institutional theory; these are also the proposed axes of future research.
The originality of the present research is the combination of theoretical findings with the practical experiences of the author gained while working as an international business consultant.
USING STRUCTURAL EQUATION MODELING ON FOREIGN DIRECT INVESTMENT OF INDIAN ECO...indexPub
Purpose: Foreign direct investment (FDI) altogether influences the beneficiary country's financial development, making it more stable, high-quality, and healthy, according to this empirical study based on the present stage of economic development. Thus, every country encountering financial globalization is attempting to lay out a serious business climate to increment worldwide speculation. Design/Methodology/Approach: the main objective of this study is based on Institutional quality or Evidence and I selected 5 factors Institutional Metrics like Voice and Accountability, Civil liberties, Women in parliament, Corruption perceptions, Political rights from DPIIT website (Secondary Data) for the period 2018-2023. Static analysis methods such as the Unit Root Test, the ARDL Approach, and SEM are being used. Originality/Value: The experts in this study used OLS (Least Squares) regression: Foreign direct investment (FDI) streams were the focal point of the exploration. The impact of institutional qualities on unfamiliar direct speculation streams has been explored utilizing the customary least square methodology. Findings: Institutional metrics of government efficacy and corruption have shown a shortrun link with foreign direct investment (FDI) flows, according to the research, which used the ARDL model to find that these indicators had positive coefficient values. As far as institutional markers like law and order, administrative quality, and voice and responsibility, the review found that political stability had a long-term association with foreign direct investment flows (7.4578 > 4.16), placing it above the upper peasant table.
Our research is to discuss the influence of interstate economic relation on MNCs’ (MultiNational
Company) OFDI (outward foreign direct investment) location choice. Although there are many researches
about the effect of interstate bargaining tier on OFDI location choice, most of them focuses on interstate
bargaining power from political aspects.
Foreign Direct Investment and Foreign Aid as Factors of GrowthNicolas Vander Meer
This document provides a literature review on foreign direct investment (FDI) and foreign aid as factors of economic growth. The key points are:
1) Recent research shows that FDI can positively impact growth through productivity spillovers from technology and knowledge transfers, as well as supply chain linkages, which can create feedback loops that attract more FDI. However, the size of these effects is difficult to measure.
2) While older studies found no effect of foreign aid on growth, more recent work shows aid can boost growth when paired with good economic policies in recipient countries. However, aid is often misallocated and could reduce poverty even more if distributed efficiently.
3) The relationships between FDI, aid
Impact of cash flow on investment levels in quoted nigerian manufacturing firms.Alexander Decker
This document summarizes a research journal article that examines the impact of cash flow on investment levels of quoted manufacturing firms in Nigeria from 2004-2008. The study found a significant positive relationship between investment and cash flow, suggesting that investment is affected by the availability of internal finance. However, the study also found that firm size and industrial classification can have varying effects on the relationship between cash flow and investment. Specifically, chemical and paints industries showed a significant positive effect, while conglomerates, food/beverages, and tobacco showed a negative effect. The results indicate investment levels can be influenced by internal cash flow availability as well as industry-specific factors.
This document summarizes a study that examined factors affecting foreign direct investment (FDI) flows to Ethiopia from 1990 to 2011. The study used a multiple regression model to analyze the relationship between FDI inflows as a percentage of GDP (the dependent variable) and five independent variables: market size, trade openness, inflation rate, infrastructure, and human capital. Time series data from 1990 to 2011 on these variables was obtained from the World Bank and analyzed. The findings showed that trade openness and inflation rate had a significant impact on FDI flows to Ethiopia, while no clear relationship was found for market size, infrastructure, and human capital.
Does the theory of uncovered interest parity hold for nigeriaAlexander Decker
This document examines whether the theory of uncovered interest parity holds between Nigeria and the United States. It first provides background on uncovered interest parity theory and how it relates to covered interest parity and expectations of future exchange rates. It then discusses previous literature that both supports and rejects uncovered interest parity. The study aims to test whether uncovered interest parity holds between Nigeria and the US over time and to examine the causal relationship between interest rates and exchange rates. It finds varying interest rates between Nigeria and the US over time, raising the possibility of interest arbitrage opportunities.
The Soundness of Financial Institutions In The Fragile Five CountriesCSCJournals
In recent years, economic globalization and technological development have contributed to a substantial rise in the integration of financial markets. Research findings in this area have indicated that a financial shock in one market can easily be transmitted to other markets globally. Especially, recent experiences showed that financial markets of some developing economies may even be more vulnerable to financial shocks than the emerging markets. There are several reasons, such as current account deficits, instability of local currencies, weaker financial institutions, for this situation. Contrary to the popular perception, this may be due to the lack of knowledge and prejudices of international investors about some emerging markets. This study evaluates and compares the financial soundness of 18 countries selected on the basis of the “Fragile Five” countries. The soundness of the financial structures of these countries has been evaluated based on the soundness of their financial institutions. The findings indicate that the countries with the weakest performance in the selected period are not the “Fragile Five” countries when compared with the countries in the whole sample.
This document summarizes a master's thesis that examines the relationship between Chinese foreign direct investment (FDI) in Africa and institutional quality in African nations. Using FDI flow data from 2003-2010 from the Chinese Ministry of Commerce and an institutional quality measure from the World Bank, the author found a significant positive relationship between these variables. Other factors like natural resources, population, productivity, and life expectancy also influenced FDI levels. The paper aims to analyze the characteristics of Chinese FDI in Africa and determine if institutional quality impacts investment levels. It also discusses how FDI, economic growth, and development are linked and the role of institutions.
New Evidence on the Determinants of Foreign Direct Investments in Emerging Ma...ijtsrd
The main goal of the current study is to investigate how conventional and institutional factors affect foreign direct investment in particular global emerging markets. The study specifically seeks to determine the impact of GDP Growth, Population Growth, Level of Inflation, Trade Openness, Voice and Accountability, Rule of Law, Control of Corruption, Political Stability, and Government Effectiveness which are institutional determinants on FDI Inflows towards the Global Emerging Markets. To approach the research question a panel regression analysis has been applied by leveraging annual data from 18 countries, namely Angola, Brazil, Chile, China, Colombia, Egypt, Ghana, India, Indonesia, Malaysia, Mexico, Nigeria, Peru, Philippines, Singapore, South Africa, South Korea and Vietnam. Findings show that inflation and GDP have a significant and positive effect on the FDI inflows, while Voice and Accountability is significant but negative towards the examined variable. Manolis I. Skouloudakis "New Evidence on the Determinants of Foreign Direct Investments in Emerging Markets: A Panel Data Approach" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-7 | Issue-2 , April 2023, URL: https://www.ijtsrd.com.com/papers/ijtsrd56212.pdf Paper URL: https://www.ijtsrd.com.com/economics/international-economics/56212/new-evidence-on-the-determinants-of-foreign-direct-investments-in-emerging-markets-a-panel-data-approach/manolis-i-skouloudakis
Determinants of Foreign Direct Investment (FDI) in Malaysia: What Matters Most?Nursuhaili Shahrudin
1. The study examines the determinants of foreign direct investment (FDI) inflows to Malaysia from 1970 to 2008 using the autoregressive distributed lag (ARDL) framework.
2. The results suggest that financial development, as measured by money supply, and economic growth, as represented by GDP, have a positive impact on FDI inflows to Malaysia in the long run.
3. A developed financial system and high economic growth rate help create a favorable environment for foreign investors and are important for attracting FDI to Malaysia.
This document discusses several theories of foreign direct investment (FDI). It begins by outlining Vernon's production cycle theory from 1966, which sought to explain US investment in Western Europe after WWII. It also discusses theories related to exchange rates on imperfect capital markets and internalization theory. However, the document notes that no single theory can fully explain FDI. It spends most time discussing Dunning's eclectic paradigm/OLI framework from the 1970s, which integrates theories of ownership advantages, location advantages, and internalization to explain why some companies engage in FDI over other options. In conclusion, the document states that while many theories have been proposed, none provide a unified explanation for FDI and its causes.
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Exchange rate as_a_determinant_of_fdi
1. Exchange Rate as a Determinant of
Foreign Direct Investment:
Does it Really Matter?
Theoretical Aspects, Literature Review
and Applied Proposal.
Isabel Cristina Ruiz
Ecos de Economía No. 21. Medellín, octubre 2005, pp. 153-171
2. Isabel Cristina Ruiz/Exchange Rate as a Determinant of Foreign Direct Investment
Isabel Cristina Ruiz*
• Abstract. This paper re-examines the role of exchange rates as determinant
of FDI. It extends the analysis to include the issue of how exchange rates determine
the decision of invest in one country depending on whether the firm is deciding to
invest on the country to service the local market or to invest on the country in order
to re-export. This paper offers a broad literature review of the state of the empirical
research in order to draw conclusions of the real importance of the exchange rate
as a determinant of FDI. Details of FDI current behavior in Latin American are
described and I propose a model of FDI to be applied for these countries. Data
sources are given.
Key words: FDI, Exchange Rate, Exchange Rate Variability.
JEL Classification: F21, F23,F31, F41.
*
Candidata a Doctorado del Department of Economics, Western Michigan University E-mail: isabel.ruiz@wmich.edu
154
3. Ecos de Economía No. 21 Medellín, octubre 2005
Exchange Rate as a Determinant of
Foreign Direct Investment:
Does it Really Matter?
Theoretical Aspects, Literature Review
and Applied Proposal.
Isabel Cristina Ruiz
1. Introduction
There are several determinants of foreign direct investment (FDI). Empirical
economists have been dedicated to study the reasons of why multinational firms
(MNCs) or transnational corporations (TNCs) invest in one country or another.
Much of this research has been dedicated to the analysis of location specific
determinants. Others have worried about institutional factors and market reforms.
In general, one question to answer has been, why does FDI flows more to some
countries than to others?
According to Trevino, et all (2002), empirical studies of FDI stem either from
a micro or a macro perspective. The idea of many of these studies is to establish
the reasons of why companies choose one country over another to invest and in
general, they point out that the two major reasons that MNCs and TNCs look at is
their perceptions of comparative opportunity and risk. According to Trevino (2002),
opportunity is referred to either gain markets or to acquire resources; risk is related
to political, monetary or competitive factors. Because companies’ motives
competencies, perceptions, and tolerance for risk may differ substantially, what
may be very attractive country for one company may be simultaneously unattractive
for another.
This paper deals with the second issue; the risk generated by a particular
location specific determinant: the exchange rate (ER). It has often been argued that
155
4. Isabel Cristina Ruiz/Exchange Rate as a Determinant of Foreign Direct Investment
the level of ER affects the decision to invest in one country depending on whether
the host country currency is overvalued or not in comparison with the investing
country. Others have argued that is not the level but its variability what matters in
terms of FDI flows. Much research has been done on the relations’ -FDI and ER-
, -trade and ER- but in general, it has often been inconclusive. Thus this paper raises
some questions that have not been clearly answered in the literature: does ER really
matters as a determining motive of FDI? If it does, does the investor see it from a
microeconomic (as in Dixit (1994)) or just as another macroeconomic determinant
(as in Goldberg and Klein (1997) and Campa (2000)? And finally, can it be
incorporated in the literature instead as financial variable?
This paper attempts to contribute to this kind of literature by doing an
extensive literature review of the empirical evidence of the role of ER
determining FDI. Furthermore, it attempts to uncover what the empirics have
shown about how it, and how it might alter the relationship between FDI and
trade (this is, is a company using ER as a strategy to re-export or is just simply
serving the local market). Therefore, analysis of ER on trade is also conducted.
It is important to note that the main emphasis is on the evidence that has been
presented for Latin American countries (LACs). Therefore, the second
section of this paper proposes a model that can be applied to these countries.
This topic is still relevant since FDI is viewed as a stable source of financing
and growth for developing countries and any type of research trying to
establish determinant motives of attracting FDI is relevant for a country
strategic economic policy.
2. Literature review
This section, discusses the existent literature in ER and FDI by dividing
it in five sections. The first section describes the literature that emphasizes the
role of ER as determinant in the decision-making process to do FDI or trade.
The second section makes reference to the empirical literature that concerns
international experience (other countries other than LACs). The third section
stresses the empirical work that has been done for LACs, and the fourth
section is a description of current aspects of Latin American countries. Lastly,
section five concludes.
156
5. Ecos de Economía No. 21 Medellín, octubre 2005
1.1. The Role of Exchange Rate as Determinant of FDI: Theoretical
Aspects.
The role of FDI within a decision-making process perspective has been
analyzed primarily from a microeconomic context. These studies have
usually taken into consideration risk adverse agents that make the decision of
whether to invest in a specific country or not. Basically, the ER is a variable
in the process that can either benefit or worse the chances of a host country
to be chosen but, in general, most of the literature has focused on analyzing
how ER and the ER variability affect the decision of carrying FDI into a
country. A smaller branch in the literature has also focused on how ER alters
the decision process in the FDI-trade relationship. Most of the studies have
focus on either one or the other; this paper pretends to develop and propose
a model to analyze both. The interest of this study is to focus on both issues:
the level and the variability of ERs determining the FDI channel and how ER
alters the relationship between FDI and trade.
Following the arguments by Bennassy and Fontagne (1999) movements
in the ER may change the decision of doing FDI and therefore determine its
relation with respect to trade. On one hand, if the investor whishes to serve
the local market, FDI and trade are substitutes and the relationship is as
follows: an appreciation of the currency increases FDI inflows due to higher
purchasing power of the local consumers; on the other hand, a depreciation
might as well increase FDI since it increases the relative wealth of foreign firms
and hence their capacity to invest (through the reduced cost of capital).
Alternatively, Bennassy and Fontagne (1999) show us that if FDI aims at
producing for re-export, it complements trade, then an appreciation of the
local currency reduces FDI inflows through lower competitiveness due to
high labor costs while a depreciation increases wealth of foreign investors and
stimulate agents demand for investment.
Another issue that has been analyzed in the literature, stresses the role
that uncertainty has on the decision-making process of a firm when investing.
Two seminal papers in this area are Dixit (1989) and Dixit and Pindyck
(1994). These papers emphasize the value of the option to wait in presence
of uncertainty and sunk costs. Dixit (1989) examines a firm’s entry and exit
decisions when the output price follows a random walk and suggest a solution
to uncertainty based on two trigger prices, one for entry and other for exit.
157
6. Isabel Cristina Ruiz/Exchange Rate as a Determinant of Foreign Direct Investment
Another example on this area is the paper by Froot and Stein (1991). Their
model is built on the idea that when there are informational asymmetries about an
asset’s payoff, it will be costly or impossible for entrepreneurs to finance that asset
solely with externally obtained funds. The model features an information asymmetry
problem with regard to assets under an entrepreneur’s direct control in a situation
where the ER can have pervasive results on investment. According to Froot and
Stein (1991) there are other competing explanations for the observed FDI-ER
relationship. Some of them are: i). Tax code changes, ii) the fact that FDI is a fixed
proportion of the overall gross capital inflow, which itself may be correlated with
ERs also iii). Some assets may have sticky prices in the face of ER changes and that
somehow, creates a temporary window of opportunity for foreign buyers and lastly,
iv). Trade barriers are a likely outcome of an increased trade deficit and therefore,
FDI allows foreign firms to avoid these barriers. Thus, if trade deficits tend to
precede currency depreciations, the FDI increase may coincidentally happen at
about the same time that currency falls in value.
1.2. FDI, Trade and Exchange Rates: The International Experience
The empirical literature on the relations FDI-ER, trade-ER presented here has
been applied for set of countries from the OECD, members and possible entrants
to the European Monetary Union (EMU), individual countries like U.K., U.S and
Canada. The evidence is presented in chronological order. In general, the evidence
presented tends to show a negative relationship between ER and FDI.
Froot and Stein (1991) is a paper that focuses the analysis on the industry
level. It examines the connection between ERs and FDI into thirteen U.S. industries
in the presence of globally integrated capital markets that are subject to informational
imperfections. The idea is that ER cause changes in wealth and these changes
translate in changes in the demand for direct investment. By analyzing different
types of capital inflows they find that FDI is the only type of capital inflow that is
statistically negatively correlated with the value of the dollar. The ER effects are
pervasive even in very disaggregated level of industries. The strongest ER effects
appear in manufacturing industries. Their model and empirical results lend some
credence to the claim that a depreciated currency can give foreigners incentive in
buying control of productive corporate assets since ER changes have important
impacts on international wealth.
158
7. Ecos de Economía No. 21 Medellín, octubre 2005
Bennassy and Fontagne (1999) consider the role of ER as a determinant in the
microeconomic decision strategy of risk adverse firms facing uncertainty. By
stressing the importance of FDI as a stable source that allows boost in economic
growth, the authors argue that foreign investors should worry about ER regimes,
because they cannot hedge at their horizon and they have to secure the behavior
of macroeconomic variables such as relative labor costs or purchasing power. Their
model portrays a trade-off between price competitiveness and a stable nominal ER.
It is tested empirically considering a fixed effect panel of 42 developing countries
receiving FDI from 17 OECD countries, during the 1984-1996, period. The authors
are able to show that nominal ER volatility is detrimental to FDI. The main results
indicate that the building of currency blocks could be a way of increasing FDI to
emerging countries.
Lopez Cordova and Meissmer, (2000) differ from the existing literature in that
it focuses not only in the relationship of trade and ER but also in how currency
unions affect trade. The paper is very unique in that they present evidence for the
Classical Gold Standard era by using an unbalanced panel consisting of 1110
country pair observations and the data covers the period 1870-1910. Their results
indicate that controlling for ER stability will spur the amount of trade between two
countries since countries with the same currency are associated with a doubling of
trade flows via decreases in the transaction costs of trade. Their gravity model
explains up to 70% of the variance in trade patterns in the late nineteenth century.
A main conclusions is that membership in a monetary union is correlated with a
twofold increase in bilateral trade between any two members. On the other hand,
adherents to the gold standard traded roughly 60% more with each other than with
nations not in the gold club. As a result, the idea that coordination on a commodity
money regime and membership in a monetary union considerably increases
international trade is supported.
Brzozowski (2003) analyzes theoretically and empirically the likely impact of
the reduction in ER uncertainty, due to the European Monetary Union (EMU)
accession by emerging countries on the intensity of FDI inflow into candidate
countries. Brzozowski (2003) develops his model by considering two existent FDI-
ER approaches: the production flexibility approach and the long run risk aversion
approach. In the first approach the effects of ER volatility depend on sunk costs in
capacity, competitive structure and convexity of the profit function in prices. The
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final conclusion of this approach is that ER volatility boosts FDI if there is a strategic
dimension added to the model; otherwise is negative. This approach is very
theoretical. The second approach is more empirical and it focuses on risk aversion.
ER risk arises because of the time lag between investment and profits in foreign
currency. The usual conclusion of this approach is that increased ER volatility has
a positive effect on FDI. Brzozowski’s (2003) empirical results tend to find negative
impact of ER on FDI flows for emerging countries.
Becker, B and Hall S. (2003) investigate the case of multinational firms FDI
in industrial R&D in the U.K. Their focus is mainly on the role of ER uncertainty.
The main contribution of the paper is that it also considers the covariance between
ERs. In the same lines of Brzozowski (2003), Becker, B and Hall S. (2003) make
their analysis in the context of a possible entry of U.K. into the EMU and the
motivation is that the pound sterling has been more powerful than the euro and
possible insertion can cause misalignments in the allocation of FDI and be either
a positive or negative factor for U.K. Their theoretical model is built within a
framework in which risk adverse firms benefit from FDI diversification and generate
conditional volatilities of the ER. The micro foundation for the model is the idea
that a firm who is purely interested in maximizing expected profits should invest
only in the country or countries with the highest returns, but a firm that is
concerned with both, maximizing profits and minimizing risk would exploit any
correlation between net returns and the variance of total return1. They used a panel
of 11 UK manufacturing industries and their results suggest that an increase in the
volatility of the euro dollar ER tends to relocate R&D investment from the Euro
Area to the UK.
1.3. FDI, Trade and Exchange Rates in Latin-American countries.
This section studies the existent literature for LACs. The goal is to establish
the main conclusions that the empirical research has obtained for these countries.
I also hope to establish the possible patterns found in the empirical results and high
light other main determinants of FDI in Latin America that may be added in the
model proposed. FDI, trade and ER relationship in Latin American countries has
1
For the covariance estimates they use a GARCH model between the log of real or nominal values of the euro dollar
ER and the sterling dollar ER.
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been analyzed for authors like Trevino, et al, (2002), Campa (2001), Goldberg, L.
and Klein, M. (1997).
Trevino, et al, (2002), conducts an empirical investigation on market reforms
and FDI in are Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela2.
This paper is not primarily focused on the role of the ER as determinant of FDI but
instead, it analyzes several determinants for FDI by relating opportunity, risk and
market reform factors to FDI flows as undertaken by TNCs. Although their model
didn’t find any influence of ER as determinant of FDI, it explains almost three-
quarters of the variance in FDI flows and uncovers other determinants3. The most
significant factors explaining FDI flows are gross domestic product (GDP as a
measure of market size); the number of privatizations within each country and
consumer price index (CPI, supporting the idea that TNCs observe inflation as a
detrimental factor for FDI).
Campa (2001) has pioneered the literature in the case of LACs. He studies the
effects that large nominal and real ER devaluations have on the structure of trade
flows of 8 Latin American devaluating countries for the 1989 to 2000 period. The
paper focuses on the behavior of three indicators of external activity: changes in the
industry composition of trade flows, changes of the country’s composition of trade
flows and, changes in the aggregate and bilateral trade flows. For changes in the
country composition trade flows, the author computes bilateral ER for each of the
top 10 trading partners using consumer price indexes, he finds that the behavior of
relative trade flows is extremely persistent across the different trading partners, but
there is more persistence in the ranking of the industry composition than that of the
trading partners. The three main conclusions of his study are: First, there is a strong
persistence in the relative ranking of import and export industries and trading
partners. In most cases large nominal ER devaluations imply neither major changes
in the industry patters of import and exports into the country nor in the relative
importance of major trading partners. Second, after ER devaluation occurs, the
devaluating country increases on average its trade flows with neighboring countries.
Third, bilateral export flows with industrialized countries are most sensitive to real
2
These seven countries account for over 85% of FDI within Latin America
3
The results indicated that Chile is the most successful country in attracting FDI, followed by Colombia, Venezuela,
Argentina, Mexico and Brazil.
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ER movements, while bilateral import flows do not show much reaction to changes
in the bilateral ER.
On the other hand, Goldberg, L. and Klein, M. (1997) is a very important
paper since it is a pioneer in making a systematic examination of FDI activity in
developing countries and the role of currency as a linkage between FDI and trade.
They analyze the patterns of FDI, trade and real ER linkages in Southeast Asia (SEA)
and LACs. They investigate specifically, the case of Japan and U.S. FDI and how
the ER shapes FDI’s relationship with trade when interacting with a set of third-
country markets: SEA and LACs. By examining the time series interactions between
the three variables in question, the paper provides stylized facts on the channels
through which particular ER movements strengthen or weaken international
linkages4. With no theoretical background, their empirical model is a time series
panel of FDI into each developing country from either Japan or the U.S. Real FDI
is expressed as a function of bilateral ER and the real income of the source and host
country. Further regressions explore the determinants of the developing country
exports and imports from either the U.S. or Japan; this regressions express real
exports and real imports as functions of real income, bilateral ER and real
investment from both sources of countries5.
The Results indicate that ER significantly affects trade, especially for SEA
countries. For SEA ER affect trade not only from Japan but also from the U.S. Also,
FDI from Japan into this region has been very sensitive to changes in the yen-dollar
ER; dollar depreciations lead to investment surges from Japan. For LAC, FDI from
the U.S. and Japan are not very responsive to the ER. Also, the trade promoting
effects of this FDI appear to be weak or insignificant with regard LAC trade with the
U.S. and Japan. In conclusion, the set of relationships between ER and FDI, and
between FDI and trade, support two channels through which the ER affects trade:
a direct effect on the relative price of goods and an indirect effect through FDI.
4
The SEA countries are: Malaysia, Philippines, Indonesia and Thailand. The LACs are Argentina, Chile and Brazil.
5
The data set used in the regressions consists of a cross section time series panel of annual observations for the 1978
to 1993 or 1994 period, depending upon the country. In particular, FDI is measured as the log of annual real dollar
value of direct investment from either Japan or U.S.
6
http://www.census.gov/foreign-trade/www/
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1.4. Characteristics of FDI in Latin-American Countries (LAC)
As stated by Trevino, et al (2002), LAC is a useful region of study because
Latin America and Caribbean countries receive a significant portion of the FDI
inflows going to developing countries. According to UNCTAD (1999); between 1999
and 1998, the share of FDI in total capital flows to developing countries increased
from 28% to 58%. Historically, FDI in LACs has been concentrated on manufacturing
activities, FDI has been supplying this markets that used to be highly protected.
Since the region started a period of opening up, FDI has focused to non-
tradable service activities (telecommunications, energy, transport, banking,
etc.). Other activities that have been getting a lot of relevance are the ones
related to the exploitation of natural resources that used to be under state
control (mining and hydrocarbons). FDI related to manufacturing industries has
been directed mainly to countries with large domestic markets like Brazil, Mexico
and Argentina or countries that serve as export platforms like Mexico and the
Caribbean.
According to recent statistics of UNCTAD , the main source of FDI flows into
Latin America is the United States. However the participation of Japan and
European countries, specifically U.K. and Spain has grown strongly in the energy
and telecommunications sector. According to ECLAC (2003) the three main forms
of FDI in the region were: acquisitions of private assets, privatizations and
investment in new assets. The main inflow of FDI started happening in the nineties
through the privatization of state enterprises, while more recently there has been an
increase in acquisition of local companies. The following table is an update on the
behavior of FDI as year 2002 for some Latin American countries, provided by the
UNCTAD.
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Table 1
Global inflows of FDI 1993-2001
USD billions, by group of countries
Source: UNCTAD.
Table 1
Country FDI Recent characteristics in 2002
Argentina FDI inflows in 2002 diminished to less than $1 billion,
compared to the peak of $24 billion in 1999
Brazil Brazil largest recipient of FDI in Latin America
Chile FDI inflows into Chile were lowest since 1993
Costa Rica Export-oriented manufacturing dominates FDI inflows
in Costa Rica
Ecuador Oil industry dominates FDI in Ecuador
Mexico FDI outflows continue to grow in 2002
Venezuela FDI inflows in Venezuela drops sharply in 2002
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1.5. Does Exchange Rate Really Matters for FDI in LACs?
A close look to the distribution of the estimated coefficients of explanatory
variables of FDI in most of these papers indicates that, the size of the market
and a country’s openness to trade are more likely to be correlated with its FDI
than other potential determinants.
The international experience for industrializes nations has shown that
most of the time a host country with a volatile ER is negatively affected in its
FDI inflows. On the other hand, it has been demonstrated that ER affects FDI
into LACs depending on whether the firm decides to serve the local market
or it decides to re-export although most of the time it is not a very powerful
explanation of FDI into these countries. The most significant factors explaining
FDI in LACs are GDP; the number of privatizations within each country and
the main nominal variable is the inflation. Others are international environment,
national policies and the strategies of business concerns ECLAC (1998).
Therefore, to answer the question of does exchange rate really matters
for LACs? We should have to answer that it does. It is just not as important
as in the case of other structural determinants but the point of this paper is
to high light new approaches to study how ER determines FDI and offer an
alternative ways other than the usual one that only incorporates a single
equation for FDI and has no consideration for exports or local demand.
2. Empirical Model Proposal
The model is inspired on Bennassy and Fontagne (1999) and Goldberg and
Klein (1997) since they are able to show that a firm might re-consider the decision
of serving a country depending on whether the ER is beneficial for exporting or doing
FDI. The main interest on applying this research to LACs is that there is still some
need in building evidence on the factors that determine the course of FDI for these
countries. It is important to note that the model is constructed for the case of FDI
and trade not in services but in goods, therefore is intended to explain mainly the
manufacturing sector.
The idea of this model is to find out if the level or the variability of ER alters
the FDI trade relationship. The idea is to uncover how much of FDI is complementary
with trade and or if FDI is being destined to serve the local market and how is this
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14. Isabel Cristina Ruiz/Exchange Rate as a Determinant of Foreign Direct Investment
relationship affected by the ER. Then, the first thing to establish is a function
explaining FDI that depends on exchange rates and its variability. Therefore,
following what has been done in the literature, equation (1) presents our first
equation in the system of equation where FDI s consider as a transfer of capital thus,
it can be interpreted in terms of comparison of expected returns on alternative
decisions of investment. The impact of exchange rates on investment decision is
dual: the level and the variability of the exchange rate matter.
GDPi GDPj
ln FDI ij = β 0 + β1Cij + β 2UNCij + β 3 ln
kq
+ β 4 ln
Pop Pop (1)
+ β 5 LnDistij + β 6 [∆eij * Ind q ik ] + β 7Open + β 8CPI j + ε t
The dependent variable is the log of the stock of FDI received by country i (in
our case a LAC) from country j in industry k to produce good q. The competitiveness
of a country is proxied with the level of real ER and a variability or uncertainty
measure of the level of ER. Transportation costs are measured as the distance
between the 2 countries. An openness variable is introduced to control for the nature
of FDI and market size is determined by each country GDP per-capita. An
interaction variable between exchange rate and the specific industry k is introduced
in order to quantify how is the impact of exchange rate variation for the specific
industry.
Since we want to see how exchange rates determine the relationship between
FDI and trade, now we have to account for two things: exports and internal demand
of goods from industry k because we know that if the firm is going to serve the local
country either appreciation or depreciation will be benefit but if its an export
platform it an appreciation might have negative consequences but a depreciation
might be beneficial through the reduction in costs. Therefore, accounting for trade,
we want to see the reaction of exports in the investing country within the same
industry. The idea is to work with very disaggregated data to be able to infer
conclusions:
GDPi
ln X ikq = β 0 + β1 X it −1+ β 2Cij + β 3UNCij + β 4 ln
Pop (2)
+ β 5Openi + β 6CPI j + ε t
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Where Xikq are the exports of good q in the country that is receiving FDI from
country j in industry k. Exports are a function of past exports, the level and variability
(C) of exchange rate (UNC), the exporting country market size, the openness of the
economy and their own inflation. According to Bennassy and Fontagne (1999), a
firm facing large exchange rate volatility will produce in the local country if it intends
to sell on the local market, but it will avoid doing it if it intends to re-export.
Therefore we need to specify the local demand:
GDPi
Dikq = f (C ij , , Pq , Pc , Ps ) (3)
Pop
Where equation (3) is the local demand of good q from industry k is a function
of the level of exchange rates as an international comparison measure, the market
size of the country (GDP per capita) and the local price of the good, the price of its
complements and the price of its substitutes. The three equations generalize a three
set system of reaction functions, all depending on the real exchange rates that will
allow establish the patterns of whether a firm is doing FDI to a specific country to
serve the local market or is doing to use if as an export platform.
3. Data Sources and Description
a. FDI stock: Data for FDI can be obtained from the OECD statistics or
UNCTAD. Also, in the U.S. Census Bureau: Foreign Trade Statistics6. The idea
is to find it such that it is disaggregated by industries by SIC. A popular and
used measure is:
Log FDI= (log FDI stock / World Consumer Price Index)
b. Competitiveness: The competitiveness is tested with the level of the real ER of
the receiving country versus the investing country. It can be obtained from
several sources like IMF – IFS-CDROM or each country’s central bank.
c. Volatility or Uncertainty: For constructing the volatility or uncertainty measure,
the exchange rate of each FDI receiving country can be used. This data can
be obtained from the IFS-CD ROM for each country.
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Volatility 1: Constructed for a given year as a sample “standard deviation” of
the change in the logarithm of the nominal average monthly exchange rate (E):
m
V1t = [(1/m) ∑ ( E t +i +1 − E t +1 ) ]2
2
i −1
Where t is a yearly index.
Volatility and Uncertainty 2: Can be constructed with a sample-based measure
of dispersion of unpredictable innovations. This is given by the conditional
variance of the innovation constructed using the generalized autoregressive
conditional heteroscedasticity GARCH specification. By using monthly data
the general model of exchange rates with conditional heteroscedasticity would
assume that the conditional mean and variance of exchange rates are
generated as follows:
E t = X t bi + mt
mt ~N(0, st2)
st2= Zta
Were Et is the exchange rate, Xt is a vector of explanatory variables contributing
to its conditional mean, mt is a heteroscedastic error term with conditional
variance st2 and Zt is a vector of variables contributing to the conditional
variancest2; Then,
N
Et = bo + ∑ i =1
bi Et-i + et (4)
set2 = ao + a1e2t-1 + a2s2et-1 (5)
Where the Eq. (4) is an autoregressive representation of the conditional
mean of exchange rates. Eq. (5) is a GARCH representation of the
conditional variance. Since we are dealing with a parametric model,
GARCH estimation gives an explicit test of whether the movement in the
conditional variance of a variable over time is statistically significant.
Measure of Uncertainty 3: Another measure of uncertainty can be
obtained through a simple mean of fitted values of equation (5).
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m
UNCERTt = (1/m) ∑ σ it
2
i =1
d. Exports and Imports: Data for exports and imports can be found in several
places and at a very disaggregate level from: Division of Trade Statistics: http:/
/unstats.un.org/unsd/comtrade/, IMF-IFS-CDROM.
e. Market Size: Market size is measured as each country GDP per capita. GDP
data is widely available in several sources as each country central bank, OECD
Statistics, U.N. Statistics, IMF statistics and finally, the most used source is
IMF-IFS-CDROM.
f. Openness: The usual measure for openness is the sum of total exports and
imports of the receiving country divided by its own GDP. The data sources are
the same as in d. and e.
g. Population: U.N Statistics Division: http://unstats.un.org/unsd/citydata/
default.asp?contid=3
h. Inflation: The level of prices can be measured with the growth of the CPI
(consumer price index) of each country. The most used source for this variable
is IMF-IFS-CDROM or each country’s central bank.
i. Distance: Distance between countries i and k can be obtained from WebPages
like: http://www.zenithair.com/misc/distance.html
j. Prices of Substitutes and Complements of good q: This variable can be
obtained from the national statistics of each country.
4. Conclusions
This paper’s number one goal was to do a complete literature review on
exchange rate and FDI. The idea was to put together what has been found
in the empirics and generalize the main results. An overall review indicates
that the literature on the relationship between exchanges rates and FDI its
broad and while in many occasions it indicates a negative effect of the level
of ER; for the variability and uncertainty the evidence was most of the time
inconclusive.
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This paper proposes a model for LACs. Three sets of reaction functions, all
depending on the real exchange rates and its variability or uncertainty. The idea is
to focus on a specific industries and specific goods in order to be able to underline
patterns that the exchange rate and its variations have on the motives of FDI. This
is, if we find that due to exchange rate variations, FDI react in certain way and also
local markets and exports react in similar way; we might be able to infer conclusions
of what are the reasons of FDI to serve certain country: either to serve the local
market or to re-export. The model could be tested for individual countries or as a
panel data with fixed effects dummies. If we consider all the variables are in
logarithms we can interpret the estimated coefficients as elasticity.
5. References
[1] Becker, B and Hall S. 2003. “Foreign Direct Investment in Industrial R&D and
Exchange Rate Uncertainty in the UK”. National Institute of Economic and
Social Research.
[2] Bennassy-Quere, A. and Fontagne, L.1999.“Exchange Rate Strategies in the
Competition for Attracting FDI”. University of Amiens and CEPII.
[3] Campa, J. 2001. “Exchange Rate Crisis and Bilateral Trade Flows in Latin
America”. NBER Working paper.
[4] Dixit, A. 1989. “Entry and Exit under Uncertainty”. Journal Of Political
Economy.
[5] Dixit, A. and Pindyck R. 1994. “Investment under Uncertainty”. Princeton
University Press.
[6] Froot, K and Stein, J. 1991. “Exchange Rates and FDI: An Imperfect Capital
Markets Approach” Quarterly Journal of Economics.
[7] Goldberg, L. and Klein, M. 1997. “Foreign Direct Investment, Trade and Real
Exchange Rate Linkages in Southeast Asia and Latin America”. NBER.
Working Paper 6344.
[8] Goldberg, L. and Kolstad, C. 1995. “Foreign Direct Investment , Exchange
Rate Variability and Demand Uncertainty”. International Economics Review.
[9] Lopez_Cordova, J.E. and Meissmer, C. 2000.“Exchange Rate Regimes and
International Trade: Evidence from the Classical Gold Standard Era”. Center
for International and Development Economics Research. University of California,
Berkley.
[10] Roberts, M. and Tybout, J. The Decision to Export in Colombia: An Empirical
Model of Entry with Sunk Costs. The American Economic Review. Vol. 87, N.
4. 545-564.
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[11] Trevino, L., Daniels, J. and Arbelaez, H. 2002. Market Reform and FDI in
Latin America: an empirical investigation. Transnational Corporations, Vol.
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[12] UNCTAD: The Characteristics of Foreign Direct Investment in Latin America.
http://r0.unctad.org/en/subsites/dite/fdistats_files/WID5.htm
[13] Comision Economica para America Latina. http://www.eclac.cl/ and http://
www.eclac.cl/analisis/default.asp?idioma=ES&unbisCategory=2
[14] Brzozowski, M., 2003. Exchange Rate Variability and FDI: Consequences of
EMU enlargement. Working Paper.
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