PUBLICATIONS & REPORTS
PUBLICATIONS & REPORTS
From Kitakyushu to the world: AGI, a research institute that studies Asia's economy and society
Exchange Rate Movements and Foreign Direct Investment： Evidence from Taiwanese Investment into China
| Author | Kun-Ming Chen, Hsiu-Hua Rau, Chia-Ching Lin |
|---|---|
| Date of Publication | 2004. 11 |
| No. | 2004-30 |
| Download | 340KB |
Contents Introduction
This paper examines the impact of exchange rate level and its volatility on outward foreign direct investment (FDI). The diversity in the motives for FDI is considered. Using a real options approach, we show that exchange rate uncertainty has a negative impact on a firm’s outward FDI. In addition, while the depreciation of a host country’s currency tends to stimulate outward FDI activity of cost-oriented firms, the depreciation tends to deter outward FDI activity of market-oriented firms. With industry panel data on Taiwan’s outward FDI into China over the period 1991-2002, our empirical findings indicate that the exchange rate level and its volatility in addition to the relative wage rate have had a significant impact on Taiwanese firms’ outward FDI into China. In general, the empirical results are consistent with the prediction of the theory.