Exchange Rate and Political Risks, Again

Gregory Clare and Ira Gang

Emerging Markets Finance and Trade, 2010, vol. 46, issue 3, 46-58

Abstract: We examine the effects of exchange rate and political risks on foreign direct investment (FDI) for multinationals. We examine FDI by U. S. firms at two levels: in all industries and on the subset of firms in manufacturing industries. When investing in developed economies, firms appear to consider past and present variation in exchange rates. When investing in less developed nations, past and present variation does not appear to weigh as heavily as present and future variation. Decreasing political risk increases FDI.

Keywords: exchange rates; foreign direct investment (search for similar items in EconPapers)
Date: 2010
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