Exchange rate strategies in the competition for attracting FDI

Agnès Benassy-Quere, Lionel Fontagné and Amina Lahreche-Révil
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Amina Lahreche-Révil: UPJV - Université de Picardie Jules Verne, TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales

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Abstract: Building on the needs for long term capital inflows in developing countries, this paper reconsiders the choice of an exchange-rate regime by integrating the determinants of multinational firms locations. The trade-off between price competitiveness and a stable nominal exchange rate is modeled. It is shown that exchange rate volatility is detrimental to foreign direct investment, and that its impact compares with misalignments. The main result is that the builfing of currency blocks could be a way of increasing FDI to emerging countries as a whole. The frontiers of monetary areas would then be strongly influenced by geography, as FDI is.

Keywords: Foreign direct investment; exchange rate regime; monetary regionalism; risk diversification; investissement direct; régime de change; régionalisme monétaire; diversification du risque (search for similar items in EconPapers)
Date: 2000-01
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03773690v1
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Published in 2000

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Related works:
Working Paper: Exchange Rate Strategies in the Competition for Attracting FDI (2000)
Working Paper: Exchange rate strategies in the competition for attracting FDI (2000)
Working Paper: Exchange rate strategies in the competition for attracting FDI (2000)
Working Paper: Exchange Rate Strategies in the Competition for Attracting FDI (1999)
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