Journal Article

Exchange rates and outward foreign direct investment: US FDI in emerging economies


  • Udomkerdmongkol
  • M.
  • Görg
  • H.
  • Morrissey
  • O.
Publication Date

This paper investigates the effect of exchange rates on US foreign direct investment (FDI) flows to a sample of 16 emerging market countries using annual panel data for the period 1990-2002. Three separate exchange rate effects are considered: the value of the local currency (a cheaper currency attracts FDI); expected changes in the exchange rate (expected devaluation implies FDI is postponed); and exchange rate volatility (discourages FDI). The results reveal a negative relationship between FDI and more expensive local currency, the expectation of local currency depreciation, and volatile exchange rates. Stable exchange rate management can be important in attracting FDI.

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JEL Classification

Key Words

  • ausländische Direktinvestitionen
  • exchange rates
  • foreign direct investment
  • Wechselkurse