Real exchange-rate uncertainty and US foreign direct investment: an empirical analysis |
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Authors: | Christian W Schmidt Udo Broll |
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Institution: | (1) Dresden Leibniz Graduate School (DLGS), Dresden University of Technology, 01062 Dresden, Germany;(2) Department of Business Management and Economics, Dresden University of Technology, Helmholtzstrasse 10, 01069 Dresden, Germany |
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Abstract: | This paper empirically analyzes the impact of exchange-rate uncertainty, exchange-rate movements, and expectations on foreign
direct investment (FDI). Using data on US outward FDI for the period 1984–2004 we examine two competing measures of exchange-rate
volatility. While the standard measure yields a discouraging effect on FDI outflows in all industries the alternative risk
specification reveals a clear distinction between manufacturing and non-manufacturing industries, with the latter showing
a positive correlation with increased exchange risk. A real appreciation of host-country currency was associated with higher
FDI flows, while expectations about an appreciation showed a negative result. |
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