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The Impact Of Exchange Rate On Fdi And The Interdependence Of Fdi Over Time

Author

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  • JOSEPH D. ALBA

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

  • PEIMING WANG

    (Faculty of Business, Auckland, University of Technology, Private Bag 92006, Auckland, 1020, New Zealand)

  • DONGHYUN PARK

    (Asian Development Bank, 6 ADB Avenue, Mandaluyong, City Philippines 1550, Philippines)

Abstract

We examine the impact of exchange rates on foreign direct investment (FDI) inflows into the United States in the context of a model that allows for the interdependence of FDI over time. Interdependence is modeled as a two-state Markov process where the two states can be interpreted as either a favorable or an unfavorable environment for FDI in an industry. We use unbalanced industry-level panel data from the US wholesale trade sector and our analysis yields two main results. First, we find evidence that FDI is interdependent over time. Second, under a favorable FDI environment, the exchange rate has a positive and significant effect on the average rate of FDI inflows.

Suggested Citation

  • Joseph D. Alba & Peiming Wang & Donghyun Park, 2010. "The Impact Of Exchange Rate On Fdi And The Interdependence Of Fdi Over Time," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 55(04), pages 733-747.
    • Handle: RePEc:wsi:serxxx:v:55:y:2010:i:04:n:s0217590810004024
    DOI: 10.1142/S0217590810004024
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    Cited by:

    1. Olawumi Dele Awolusi, 2019. "Policy and Non-Policy Factors: What Determines Foreign Direct Investments in Africa?," Journal of Social and Development Sciences, AMH International, vol. 9(4), pages 49-61.
    2. Olawumi D Awolusi & Theuns G Pelser & Adedeji Saidi Adelekan, 2016. "Determinants of Foreign Direct Investment: New Granger Causality Evidence from Asian and African Economies," Journal of Economics and Behavioral Studies, AMH International, vol. 8(1), pages 104-119.
    3. Muhammad Mahmud Mostafa, 2020. "Impacts of Inflation and Exchange Rate on Foreign Direct Investment in Bangladesh," International Journal of Science and Business, IJSAB International, vol. 4(11), pages 53-69.
    4. Syarifuddin, Ferry, 2020. "The Dynamics of Foreign Direct Investment and Exchange Rates: An Interconnection Approach in ASEAN," MPRA Paper 104596, University Library of Munich, Germany.
    5. Jung Wan Lee, 2015. "Dynamic Relationships between Exchange Rates and Foreign Direct Investment: Empirical Evidence from Korea," Asian Economic Journal, East Asian Economic Association, vol. 29(1), pages 73-90, March.
    6. Rudra P Pradhan, 2011. "Determinants of Foreign Direct Investment in SAARC Countries: An Investigation Using Panel VAR Model," Information Management and Business Review, AMH International, vol. 3(2), pages 117-126.
    7. Phillips, Shauna & Ahmadi-Esfahani, Fredoun Z., 2008. "Exchange Rates and Foreign Direct Investment: Theoretical Models and Empirical Evidence," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 1-21.

    More about this item

    Keywords

    Exchange rate; FDI; Markov; unbalanced panel; F31; F21; F23;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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