Currency Depreciation and Firm Investment: The Capital Reshoring Channel

Yung Jung Kim () and Dong Gyun Ko ()
Additional contact information
Yung Jung Kim: Department of Economics, Sogang University, Seoul, Korea
Dong Gyun Ko: Department of Economics, Sogang University, Seoul, Korea

No 2504, Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy)

Abstract: We introduce the capital reshoring channel as a novel mechanism through which currency depreciation can stimulate investment. Unlike traditional financial channels that emphasize balance sheet deterioration from foreign-currency liabilities, this mechanism highlights the asset side of firms’ external positions—specifically, foreign direct investment holdings. Depreciation raises the home-currency value of foreign subsidiary earnings, facilitating dividend repatriation, expanding internal liquidity, and ultimately supporting investment at home. Using Korean firm-level data from 2018–2022, we show that firms with pre-existing foreign subsidiaries experience significantly larger increases in cash flow and investment following real depreciation. This capital reshoring effect is particularly pronounced among high-technology firms, financially constrained firms, those exposed to trade conflicts, and privately held firms. Our results demonstrate that overseas assets reshape the transmission of exchange rate shocks, pointing to a previously overlooked expansionary channel of depreciation.

Keywords: Exchange Rates; Capital Reshoring; Firm Investment; Foreign Direct Investment (search for similar items in EconPapers)
JEL-codes: E22 F31 G31 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://buly.kr/2Ujq7ZW First version, 2025 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sgo:wpaper:2504

Access Statistics for this paper

More papers in Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy) Contact information at EDIRC.
Bibliographic data for series maintained by Jung Hur ().