The Impact of Exchange Rate Volatility on U.S. Foreign Direct Investment in Latin America

The Impact of Exchange Rate Volatility on U.S. Foreign Direct Investment in Latin America
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Publisher : ProQuest
Total Pages :
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ISBN-10 : 0549388028
ISBN-13 : 9780549388029
Rating : 4/5 (029 Downloads)

Book Synopsis The Impact of Exchange Rate Volatility on U.S. Foreign Direct Investment in Latin America by : Callye R. M. Masten

Download or read book The Impact of Exchange Rate Volatility on U.S. Foreign Direct Investment in Latin America written by Callye R. M. Masten and published by ProQuest. This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The determinants of foreign direct investment (FDI) have been widely examined. Previous studies have shown that exchange rates play a vital role in the analysis and are a major determinant in the flow of FDI. Most research has focused on examining how exchange rate volatility affects the economies of developed nations. However, little research has been done in understanding the impact of exchange rate volatility on FDI flows to Latin America. Developing countries lack the capital that is needed for further growth. Therefore, FDI is important to developing countries, because it allows them to gain the necessary capital. This paper examines the relationship between exchange rate volatility, political institutions and FDI flows into Latin America across two sectors: food processing, and industrial manufacturing. Empirical results show that exchange rate volatility significantly deters the flow of U.S. FDI into Latin America. Other significant economic factors are U.S. interest rates and openness to trade. Conflict and corruption are the political risk factors that have significant impacts on FDI flows. Conclusions from the paper recommend governments in Latin America to implement macroeconomic polices that promote stability, which could help reduce exchange rate volatility and lower inflation.


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