The Endogeneity of the Exchange Rate as a Determinant of FDI : A Model of Entry and Multinational Firms

@inproceedings{Russ2005TheEO,
  title={The Endogeneity of the Exchange Rate as a Determinant of FDI : A Model of Entry and Multinational Firms},
  author={Katheryn Niles Russ},
  year={2005}
}
This paper argues that when the exchange rate and projected sales in the host country are jointly determined by underlying macroeconomic variables, standard regressions of FDI flows on both exchange rate levels and volatility are subject to bias. The results hinge on the interaction of macroeconomic uncertainty, a sunk cost, and heterogeneous productivity across firms. They indicate that a multinational firm’s response to increases in exchange rate volatility will differ depending on whether… CONTINUE READING
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