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Exchange rate changes effects on foreign direct investment

Author

Listed:
  • Roman Hušek
  • Václava Pánková

Abstract

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.

Suggested Citation

  • Roman Hušek & Václava Pánková, 2008. "Exchange rate changes effects on foreign direct investment," Prague Economic Papers, Prague University of Economics and Business, vol. 2008(2), pages 118-126.
    • Handle: RePEc:prg:jnlpep:v:2008:y:2008:i:2:id:324:p:118-126
    DOI: 10.18267/j.pep.324
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    Citations

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    Cited by:

    1. Václav Žďárek, 2009. "Moderní způsoby produkce a přímé zahraniční investice [Modern methods of production and foreign direct investment]," Politická ekonomie, Prague University of Economics and Business, vol. 2009(4), pages 509-543.
    2. Hooman Lajevardi & Murshed Chowdhury, 2024. "How Does the Exchange Rate and Its Volatility Influence FDI to Canada? A Disaggregated Analysis," JRFM, MDPI, vol. 17(2), pages 1-23, February.
    3. Kunofiwa Tsaurai, 2017. "Is foreign Portfolio Equity Investment Inspired Growth Hypothesis Relevant in Emerging Markets?," EuroEconomica, Danubius University of Galati, issue 2(36), pages 78-90, November.
    4. Zerrin KILI ARSLAN, 2018. "The Relationship between Exchange Rate Volatility and Foreign Direct Investment in Turkey: Toda and Yamamoto Causality Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 61-67.

    More about this item

    Keywords

    foreign direct investment; panel data; exchange rate volatility;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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