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Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach
Abstract
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.
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Citations
Cited by
Shareholder Wealth Effects of European Domestic and Cross‐border Takeover Bids
Goergen, M., & Renneboog, L. (2004) · European Financial Management · doi:10.1111/j.1468-036x.2004.00239.x · Cited by 486
Policy uncertainty, irreversibility, and cross-border flows of capital
Julio, B., & Yook, Y. (2016) · Journal of International Economics · doi:10.1016/j.jinteco.2016.08.004 · Cited by 473
DETERMINANTS OF FOREIGN DIRECT INVESTMENT – A TALE OF NINE THEORETICAL MODELS
Faeth, I. (2009) · Journal of Economic Surveys · doi:10.1111/j.1467-6419.2008.00560.x · Cited by 417
Wang, M. G., Wong, M. C. S., Zhuang, H., & Cate, R. (2024) · Global Economic Review · doi:10.1080/1226508x.2024.2305468 · Cited by 3
Metadata
- Authors
- Froot, K. A., & Stein, J. C.
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 1991-11-01
- Volume
- 106
- Issue
- 4
- Pages
- 1191-1217
- ISSN
- 0033-5533 (ISSN-L)
- 1531-4650
- OpenAlex
- W3123884827
- Cited by
- 1,299
- References
- 0
- FWCI
- 23.60
- Type
- journal article
- Language
- en
- Open access
- closed
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- CoChat. (2026). Citation check: Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach. https://app.cochat.ai/papers/10.2307/2937961
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- Froot, K. A., & Stein, J. C. (1991). Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach. The Quarterly Journal of Economics. https://doi.org/10.2307/2937961
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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