Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach / Kenneth A. Froot, Jeremy C. Stein.

Format:

Book

Author/Creator:

Froot, Kenneth A.

Contributor:

National Bureau of Economic Research.

Stein, Jeremy C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2914.

NBER working paper series no. w2914

Language:

English

Subjects (All):

Capital movements.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Exchange Rates and Foreign Direct Investment

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Cambridge, Mass. : National Bureau of Economic Research, 1989.

Summary:

We examine the connection between exchange rates and foreign direct investment that arises when globally integrated capital markets are subject to informational imperfections. These imperfections cause external financing to be more expensive than internal financing, so that changes in wealth translate into changes in the demand for direct investment. By systematically lowering the relative wealth of domestic agents, a depreciation of the domestic currency can lead to foreign acquisitions of certain domestic assets. we develop a simple model of this phenomenon and test for its relevance in determining international capital flows.

Notes:

Print version record

March 1989.

Includes bibliographical references.