Prague Economic Papers 2008, 17(2):118-126 | DOI: 10.18267/j.pep.324

Exchange rate changes effects on foreign direct investment

Roman Hušek¹, Václava Pánková²

¹ University of Economics, nám. W. Churchilla 4, CZ - 130 67 Praha 3 (husek@vse.cz); GA ČR 402/06/0190.

² University of Economics, nám. W. Churchilla 4, CZ - 130 67 Praha 3 (pankova@vse.cz); GA ČR 402/07/0049.

Foreign direct investment (FDI) is an important phenomenon in international economic relations. Generally, FDI is studied from the point of view of capital and technology transfers to the recipient countries while respecting a basic fact that profit is the main investor's interest. In this paper in Part 2, some representative examples of typical FDI models are presented, whereas Part 3 should justify the specification of a model which is formulated and applied in Part 4. Investors can be driven by the expectation of maximum profit which would be obtained by allocating FDI according to the exchange rate volatility, i.e. after a sudden large devaluation of the host country currency large FDI inflows will follow as future appreciation is expected. Large exchange rate shocks are described with the help of skewness. Negative skewness means that the appreciations occur more often. Reasoning of the model explaining FDI by mean, standard deviation and skewness of changes of exchange rate is provided. An application to two New EU Members and two ASEAN countries is presented using panel data and seemingly unrelated regression technique.

Klíčová slova: foreign direct investment, panel data, exchange rate volatility

JEL classification: C23, F21

Zveřejněno: 1. leden 2008  Zobrazit citaci