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Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment
Author(s) -
Kiyota Kozo,
Urata Shujiro
Publication year - 2004
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2004.00664.x
Subject(s) - foreign direct investment , exchange rate , economics , monetary economics , currency , volatility (finance) , international economics , depreciation (economics) , valuation effects , interest rate parity , valuation (finance) , macroeconomics , financial economics , capital formation , market economy , finance , financial capital , human capital
In the light of the importance of foreign direct investment (FDI) for the promotion of economic development, this paper examines the impact of the changes in the real exchange rate and its volatility on FDI. Examining Japan's FDI by industries, we found that the depreciation of the currency of the host country attracted FDI, while the high volatility of the exchange rate discouraged FDI. Our results suggest the need to avoid over‐valuation of the exchange rate and to maintain stable but flexible exchange rate in order to attract FDI.