EXCHANGE RATES AND INVESTMENT BY MULTINATIONAL CORPORATIONS: A Firm-Level Test of the Imperfect Capital Markets Result

Peter Crabb ()

International Trade from EconWPA

Abstract: The real value of the U.S. dollar and the level of U.S. foreign direct investment (FDI) have shown a strong correlation since the 1970s. Previous empirical studies on this relationship use primarily national or industry level data. This study uses firm-level data to test the hypothesis that exchange rates affect investment decisions of corporations by affecting the foreign currency value of their internal wealth. Implications from this model of firm behavior are tested using firm-level and geographically detailed data from U.S. national and multinational corporations. The results are inconsistent with the wealth effect explanation of FDI.

Keywords: Multinational Firms; Foreign Exchange (search for similar items in EconPapers)
JEL-codes: F23 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-rmg
Date: 2003-07-02
Note: Type of Document - Word; prepared on IBM; to print on HP;
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpit:0307001

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