Exchange rate and corporate investment: Heterogeneous effects via the global value chain networks

Wendi Huang and Weikang Zhang

Journal of International Money and Finance, 2024, vol. 147, issue C

Abstract: This study analyzes how exchange rates affect corporate investment by scrutinizing firms' global value chain (GVC) networks. A salient feature of our analysis is that we adopt novel GVC datasets and methodologies to construct upstream- and downstream-specific exchange rates. We couple these GVC-integrated real exchange rates with global firm-level data and document that unfavorable exchange rate movements hinder operating performance and, therefore, corporate investment, especially among financially constrained firms. We use two large currency shocks in Brazil and Sweden to provide causal evidence. The results highlight nonnegligible frictions of how GVC-integrated real exchange rates affect corporate investment.

Keywords: Exchange rate effects; Corporate investment; Global value chains; Financial constraints (search for similar items in EconPapers)
JEL-codes: F31 F62 G31 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:147:y:2024:i:c:s0261560624001463

DOI: 10.1016/j.jimonfin.2024.103159

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