The endogeneity of the exchange rate as a determinant of FDI: A model of entry and multinational firms

Russ, K.

doi:10.1016/j.jinteco.2006.04.004

Cited by 140 publications

(100 citation statements)

References 37 publications

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“…In this literature, Mitton (2006) using static panel data techniques with 1,141 publicly traded firms in 28 emerging markets (with the 4 Russ (2007), however, argue that a multinational firm's response to exchange rate volatility depend on the nature of the exchange rate shock, that is whether it results from home or host country factors. number of firms ranging between 2 and 136 per country) explores the effects of stock market liberalization on firm performance and finds that firms with access to foreign capital grow faster and enjoy higher investment and profitability rates.…”

Section: Literature Reviewmentioning

confidence: 99%

Growth under exchange rate volatility: Does access to foreign or domestic equity markets matter?

Demir

2013

Journal of Development Economics

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Employing a matched employer-employee dataset, this paper explores the effects of exchange rate volatility on the growth performances of domestic versus foreign, and publicly traded versus non-traded private manufacturing firms in a major developing country, Turkey. The empirical results using dynamic panel data estimation techniques and comprehensive robustness tests suggest that exchange rate volatility has a significant growth reducing effect on manufacturing firms. However, having access to foreign, and to a lesser degree, domestic equity markets is found to reduce these negative effects at significant levels. These findings continue to hold after controlling for firm heterogeneity due to differences in export orientation, external indebtedness, profitability, productivity, size, industrial characteristics, and time-variant institutional changes.

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Section: Literature Reviewmentioning

confidence: 99%

Growth under exchange rate volatility: Does access to foreign or domestic equity markets matter?

Demir

2013

Journal of Development Economics

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“…Finally, this analysis raises an issue also brought to light by Russ's(2007) study of the endogeneity of exchange rate as a determinant of FDI: The general equilibrium structure of the model shows that because multinational presence, measured productivity, and output are jointly determined, growth regressions suffer from important endogeneity problems.…”

Section: The Interaction Between Productivity Shocks and The Cost Of mentioning

confidence: 96%

“…In addition, at any point in time, the composition of the multinational sector is pinned down endogenously by the microeconomic structure and determined by the interaction of the per-period fixed cost to produce in the foreign market, the dispersion of productivity, and the elasticity of substitution among goods' varieties . Over time, firms enter and exit the domestic market and 8 See also a survey of recent theories of foreign direct investment in Russ (2009) and Ramondo and Rappoport (2010). In a static partial equilibrium framework, other contributions relating FDI and heterogeneous productivity include those of Helpman, Melitz, and Yeaple (2004), Yeaple (2009), Cole and Davies (2011) and Wang, Wen, and Xu (2012).…”

Section: The Modelmentioning

confidence: 99%

Multinational Firms' Entry and Productivity: Some Aggregate Implications of Firm-level Heterogeneity

Contessi¹

2015

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Despite the microeconomic evidence supporting the superior idiosyncratic productivity of multinational firms (MNFs) and their affiliates, cross-country studies fail to find robust evidence of a positive relationship between foreign direct investment and growth. In order to study the aggregate implications of MNFs entry and production, I develop a dynamic general equilibrium model with firm heterogeneity where MNFs sort according to their own productivity. The entry and production of MNFs contribute to aggregate productivity growth at decreasing rates and affect domestic producers through general equilibrium effects in the labor market. I argue that the heterogeneous composition of the population of affiliates can help explain the conflicting evidence on the impact of foreign direct investment on growth.JEL codes: F21, F23, F41, F42

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“…An oligopolistic model has been proposed by Egger et al (2005) to asses real effects of exchange rates under assumption of endogenous elastic demand. General equilibrium model has been used by Russ (2007) to analyse effect of exchange rate on activities of multinational firms. Ajayi and Mougoue (1996) conducted study for eight advance economies to observe impact of exchange rate on stock performance.…”

Section: International Scenariomentioning

confidence: 99%

FDI Inflow, Stock Market Performance and Exchange Rate: Indian Scenario

Kunal

Phani²

2017

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In this research work, macro level analysis has been conducted to assess impact of foreign direct investment (FDI) capital inflow in Indian economy. This study is focused on causality relationship between FDI inflow, stock market performance and foreign exchange rate. This framework is used for policy implications of relationship between three variables. These macro-economic variables are linked with different policies. Causality tests performed on these variables are further used for policy implications. Impact of change in exchange rate on changes in FDI inflow is the least significant followed by impact of changes in FDI inflow on changes in sensitivity index of stock exchange (SENSEX). The third least significant relationship is observed between changes in FDI inflow on change in exchange rate. These relationships are implied to "Impossible Trinity" framework to assess preference for monetary, fiscal and foreign exchange rate policies. It is observed that improving performance of stock market (SENSEX) should be on priority followed by exchange rate. These finding have implications on fiscal policy, monetary policy and exchange rate. The increase in return of stock market and favourable exchange rate will help in increasing FDI inflow in Indian economy. Stock market performance depends on daily transactions by investors and they are regulated only, not controlled. Supply of foreign currency in India is controlled by the Reserve Bank of India (RBI), who assesses the supply conditions of the market and attempts to manage exchange rate in favour of Indian economy. In other words, the exchange rate can be controlled by having control on supply of foreign currency in domestic market. Hence, there is possibility of having fixed exchange rate and target band of exchange rate.

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The endogeneity of the exchange rate as a determinant of FDI: A model of entry and multinational firms

Cited by 140 publications

References 37 publications

Growth under exchange rate volatility: Does access to foreign or domestic equity markets matter?

Growth under exchange rate volatility: Does access to foreign or domestic equity markets matter?

Multinational Firms' Entry and Productivity: Some Aggregate Implications of Firm-level Heterogeneity

FDI Inflow, Stock Market Performance and Exchange Rate: Indian Scenario

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