Prague Economic Papers 2008, 17(2):118-126 | DOI: 10.18267/j.pep.324

Exchange rate changes effects on foreign direct investment

Roman Hušek1, Václava Pánková2
1 University of Economics, nám. W. Churchilla 4, CZ - 130 67 Praha 3 (husek@vse.cz); GA ČR 402/06/0190.
2 University of Economics, nám. W. Churchilla 4, CZ - 130 67 Praha 3 (pankova@vse.cz); GA ČR 402/07/0049.

Foreign direct investment (FDI) is an important phenomenon in international economic relations. Generally, FDI is studied from the point of view of capital and technology transfers to the recipient countries while respecting a basic fact that profit is the main investor's interest. In this paper in Part 2, some representative examples of typical FDI models are presented, whereas Part 3 should justify the specification of a model which is formulated and applied in Part 4. Investors can be driven by the expectation of maximum profit which would be obtained by allocating FDI according to the exchange rate volatility, i.e. after a sudden large devaluation of the host country currency large FDI inflows will follow as future appreciation is expected. Large exchange rate shocks are described with the help of skewness. Negative skewness means that the appreciations occur more often. Reasoning of the model explaining FDI by mean, standard deviation and skewness of changes of exchange rate is provided. An application to two New EU Members and two ASEAN countries is presented using panel data and seemingly unrelated regression technique.

Keywords: foreign direct investment, panel data, exchange rate volatility
JEL classification: C23, F21

Published: January 1, 2008  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Hušek, R., & Pánková, V. (2008). Exchange rate changes effects on foreign direct investment. Prague Economic Papers, 17(2), 118-126. doi: 10.18267/j.pep.324
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Ball, L., Mankiw, N. (1995), "Relative Price Changes as Aggregate Supply Shocks". Quarterly Journal of Economics, 110 (1), pp. 161-193. Go to original source...
    2. Barrell, R., Gottschalk, S. D., Hall, S. G. (2006), "Foreign Direct Investment and Exchange Rate Uncertainty in Imperfectly Competitive Industries", http://www.niesr.ac.uk/pubs/dps/dp220.pdf.
    3. BOI Investment Review (2004), 13 (3), April.
    4. Brzozowski, M. (2003), "Exchange Rate Volatility and Foreign Direct Investment - Consequences of EMU Enlargement". Center for Social and Economic Research, http://www.case.com.pl/upload/publikacja_plik/1521534_sa258.pdf.
    5. Chakrabarti, R., Scholnick, B. (2006), "Exchange Rate Expectations and FDI Flows". Faculty of Business, University Alberta, http://www.prism.gatech.edu/~rc166Ex.FDI.pdf.
    6. Chowdhury, A., Mavrotas, G. (2003), "FDI & Growth: What Causes What". WIDER Conference, Helsinky.
    7. Mandel, M., Tomšík, V. (2006), "Přímé zahraniční investice a vnější rovnováha v tranzitivní ekonomice: aplikace teorie životního cyklu". Politická ekonomie, 14 (6), pp. 723-741. Go to original source...
    8. Patrawimolpon Pichit, Pongsaparn Runchana (2006), "Thailand in the New Asian Economy". Bank of Thailand Symposium.
    9. Ruiz, I. C. (2005), "Exchange Rate as a Determinant of FDI: Does it Really Matter?" Medelin, Ecos de Economia, 21, pp. 153-171.
    10. Shan, J. (2002), "A VAR Approach to the Economics of FDI in China". Applied Economics, 34 (7), pp. 885-893. Go to original source...
    11. Sung, H., Lapan, H. E. (2000), "Strategic Foreign Direct Investment and Exchange Rate Uncertainty". International Economic Review, 41 (2), pp. 411-423. Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content