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A general equilibrium analysis of foreign direct investment and the real exchange rate

โœ Scribed by Milind M. Shrikhande

Publisher
John Wiley and Sons
Year
2002
Tongue
English
Weight
177 KB
Volume
7
Category
Article
ISSN
1076-9307

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โœฆ Synopsis

Abstract

Modern theories of foreign direct investment claim that foreign direct investment occurs because certain domestic assets are worth more under foreign control. This view developed by industrial organization theorists is indifferent to the financing mode of a foreign acquisition as well as to the interaction between foreign direct investment (FDI) and real exchange rates. However, empirical research has uncovered a significant relationship between FDI and exchange rates. Second, partial equilibrium models of FDI have focused on FDI as foreign acquisitions of existing assets but not on new capital formation initiated by foreigners. We complement these contributions by developing a welfareโ€maximizing, general equilibrium model of the interaction between FDI as crossโ€border acquisitions, and the real exchange rate. Copyright ยฉ 2002 John Wiley & Sons, Ltd.

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