GEP Research Paper 01/22
The Impact of Exchange Rate Variability on US Direct Investment
H. Görg and K. Wakelin
This paper was subsequently published in The Manchester School, Vol. 70, No.3 (Special Issue on 'Foreign Direct Investment and Economic Integration'), 2002, pp.380-397.
Abstract
This paper examines the impact of the level of the exchange rate, volatility in the exchange rate and exchange rate expectations on outward US FDI. In our empirical analysis we find no evidence for an effect of exchange rate variation on either US outward investment or inward investment in the US. This result is robust to the two measures of FDI used - financial flows from the parent and MNE sales abroad - the choice of either outward or inward FDI, and a number of different estimation procedures. As regards the level of the exchange rate we find a positive relationship between US outward investment and appreciation in the host country currency while there is a negative relationship between US inward investment and appreciation in the dollar.
Issued in August 2001.
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