 Exchange rates and FDI strategies of multinational enterprisesBong-Soo Lee and Byung S. Min Pacific-Basin Finance Journal, 2011, vol. 19, issue 5, 586-603 Abstract: We examine the role of both the volatility and levels of exchange rates in the determination of multinational enterprises' (MNEs) investments using a unique Korean dataset. These data provide a natural laboratory due to the Korean experience of a severe financial crisis in the late nineties. We find, first, that the behavior of foreign investors in Korea has changed following the 1997 crisis. The change in foreign direct investment (FDI) in response to exchange rate volatility is robust, while that to exchange rate level is quite mixed, which is consistent with recently developed real option-based FDI theory. Second, the effect of exchange rate volatility on FDI is persistent, whereas that of misalignment of level is only temporary, suggesting that MNEs regard volatility as a more generic determinant of foreign investment than misalignment of the exchange rate level. Third, we find strong evidence of nonlinearity between uncertainty and FDI, which may shed some light on why existing literature shows mixed results on the relation between exchange rate variables and FDI. Keywords: Exchange; rate; Financial; crisis; Foreign; direct; investment; (FDI); Multinational; enterprises; (MNEs); South; Korea (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:19:y:2011:i:5:p:586-603 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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