NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach

Kenneth A. Froot, Jeremy C. Stein

NBER Working Paper No. 2914 (Also Reprint No. r1692)
Issued in March 1989
NBER Program(s):   ME   ITI   IFM

We examine the connection between exchange rates and foreign direct investment that arises when globally integrated capital markets are subject to informational imperfections. These imperfections cause external financing to be more expensive than internal financing, so that changes in wealth translate into changes in the demand for direct investment. By systematically lowering the relative wealth of domestic agents, a depreciation of the domestic currency can lead to foreign acquisitions of certain domestic assets. we develop a simple model of this phenomenon and test for its relevance in determining international capital flows.

download in pdf format
   (432 K)

download in djvu format
   (313 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2914

Published: The Quarterly Journal of Economics, Vol. CVI, No. 427, Iss. 4, pp. 1191-121 7, (November 1991). citation courtesy of

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us