Large Devaluations, Foreign Direct Investment and Exports : A Speculative Note
One side-effect of the Global Financial Crisis of 2008-09 was the resurgence of a debate over exchange rates. The conventional wisdom dictates that real-exchange rate adjustments are needed in order to bring about changes in trade balances across c...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110331131956 http://hdl.handle.net/10986/3386 |
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okr-10986-3386 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ASSETS BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISES BANK POLICY BASKET OF GOODS BENCHMARK CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL INFLOWS COIN CONSUMER GOODS CONSUMERS COUNTRY FIXED EFFECTS CURRENCY CURRENCY CRISES CURRENCY VALUE CURRENT ACCOUNT DEPENDENT VARIABLE DEPENDENT VARIABLES DEPRECIATIONS DEVALUATION DEVALUATIONS DEVELOPING COUNTRIES DEVELOPING ECONOMIES DEVELOPMENT POLICY DIRECT INVESTMENT INFLOWS ECONOMETRIC ESTIMATES ECONOMETRIC EVIDENCE ECONOMIC GROWTH ECONOMICS LITERATURE ECONOMIES OF SCALE ELASTICITY EMERGING ECONOMIES EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE DEVALUATION EXCHANGE RATE DEVALUATIONS EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE SHOCKS EXCHANGE RATES EXCHANGE-RATE EXPLANATORY VARIABLE EXPLANATORY VARIABLES EXPORT GROWTH EXPORT GROWTH RATE EXPORT VOLUMES EXPORTER EXPORTERS EXPORTS FDI FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL SUPPORT FINANCIAL VARIABLES FIXED COSTS FOREIGN AFFILIATES FOREIGN DIRECT INVESTMENT FOREIGN INVESTORS FUTURE RESEARCH GDP GDP PER CAPITA GLOBAL IMBALANCES GROWTH RATE GROWTH RATES HIGH-INCOME COUNTRIES HIGH-INCOME COUNTRY HOST COUNTRY IMPORT IMPORT PRICES INCOME INDUSTRIAL COUNTRIES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL INTERNATIONAL MONEY INTERNATIONAL TRADE INVESTMENT GOODS INVESTMENT INFLOWS LEVY LIQUIDITY LIQUIDITY CRISES MANUFACTURED EXPORTS MANUFACTURING FIRMS MARKET BEHAVIOR MARKET VALUATIONS MERGERS MICRO DATA MISALIGNMENT MNES MONETARY FUND MONOPOLISTIC COMPETITION MULTINATIONAL CORPORATIONS MULTINATIONAL ENTERPRISE MULTINATIONAL ENTERPRISES OPPORTUNISTIC BEHAVIOR POSITIVE COEFFICIENT PRICE INDEXES PRODUCTION COSTS REAL DEVALUATIONS REAL EFFECTIVE EXCHANGE RATE REAL EFFECTIVE EXCHANGE RATES REAL EXCHANGE RATE REAL EXCHANGE RATES REAL EXCHANGE-RATE REGRESSION ANALYSIS RELATIVE PRICES RETURN STANDARD DEVIATION STANDARD DEVIATIONS STOCK MARKET TIME HORIZON TRADE BALANCES TRADE STATISTICS TRADING TRADING PARTNERS TRUST FUND UNCERTAINTY UNDERVALUATION |
| spellingShingle |
ASSETS BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISES BANK POLICY BASKET OF GOODS BENCHMARK CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL INFLOWS COIN CONSUMER GOODS CONSUMERS COUNTRY FIXED EFFECTS CURRENCY CURRENCY CRISES CURRENCY VALUE CURRENT ACCOUNT DEPENDENT VARIABLE DEPENDENT VARIABLES DEPRECIATIONS DEVALUATION DEVALUATIONS DEVELOPING COUNTRIES DEVELOPING ECONOMIES DEVELOPMENT POLICY DIRECT INVESTMENT INFLOWS ECONOMETRIC ESTIMATES ECONOMETRIC EVIDENCE ECONOMIC GROWTH ECONOMICS LITERATURE ECONOMIES OF SCALE ELASTICITY EMERGING ECONOMIES EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE DEVALUATION EXCHANGE RATE DEVALUATIONS EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE SHOCKS EXCHANGE RATES EXCHANGE-RATE EXPLANATORY VARIABLE EXPLANATORY VARIABLES EXPORT GROWTH EXPORT GROWTH RATE EXPORT VOLUMES EXPORTER EXPORTERS EXPORTS FDI FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL SUPPORT FINANCIAL VARIABLES FIXED COSTS FOREIGN AFFILIATES FOREIGN DIRECT INVESTMENT FOREIGN INVESTORS FUTURE RESEARCH GDP GDP PER CAPITA GLOBAL IMBALANCES GROWTH RATE GROWTH RATES HIGH-INCOME COUNTRIES HIGH-INCOME COUNTRY HOST COUNTRY IMPORT IMPORT PRICES INCOME INDUSTRIAL COUNTRIES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL INTERNATIONAL MONEY INTERNATIONAL TRADE INVESTMENT GOODS INVESTMENT INFLOWS LEVY LIQUIDITY LIQUIDITY CRISES MANUFACTURED EXPORTS MANUFACTURING FIRMS MARKET BEHAVIOR MARKET VALUATIONS MERGERS MICRO DATA MISALIGNMENT MNES MONETARY FUND MONOPOLISTIC COMPETITION MULTINATIONAL CORPORATIONS MULTINATIONAL ENTERPRISE MULTINATIONAL ENTERPRISES OPPORTUNISTIC BEHAVIOR POSITIVE COEFFICIENT PRICE INDEXES PRODUCTION COSTS REAL DEVALUATIONS REAL EFFECTIVE EXCHANGE RATE REAL EFFECTIVE EXCHANGE RATES REAL EXCHANGE RATE REAL EXCHANGE RATES REAL EXCHANGE-RATE REGRESSION ANALYSIS RELATIVE PRICES RETURN STANDARD DEVIATION STANDARD DEVIATIONS STOCK MARKET TIME HORIZON TRADE BALANCES TRADE STATISTICS TRADING TRADING PARTNERS TRUST FUND UNCERTAINTY UNDERVALUATION Lederman, Daniel Large Devaluations, Foreign Direct Investment and Exports : A Speculative Note |
| geographic_facet |
The World Region |
| relation |
Policy Research working paper ; no. WPS 5619 |
| description |
One side-effect of the Global Financial
Crisis of 2008-09 was the resurgence of a debate over
exchange rates. The conventional wisdom dictates that
real-exchange rate adjustments are needed in order to bring
about changes in trade balances across countries. However,
the literature on the effect of exchange rate fluctuations
and currency under-valuations on exports is surprisingly
ambiguous. This note explores for the first time the
potential role of foreign direct investment as an
intermediate variable in the process of trade adjustment
after large real-exchange rate changes. Real-exchange rate
devaluations might result in increases in foreign direct
investment inflows, as investors can take advantage of
changes in the foreign-currency value of domestic assets. If
so, the response of exports will depend to some extent on
the nature of such foreign direct investment inflows, with
inflows motivated by "horizontal" foreign direct
investment associated with negligible changes in export
growth after devaluation. The author utilizes quarterly data
on real effective exchange rates, foreign direct investment
inflows and exports to explore the effects of large
devaluations (defined as the largest observed quarterly real
effective exchange rate devaluation) on foreign direct
investment and exports from 1990 to 2010. The admittedly
speculative evidence suggests that there were heterogeneous
experiences regarding the timing and magnitude of subsequent
changes in foreign direct investment and exports, but on
average foreign direct investment inflows tended to precede
export surges within two year horizons. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Lederman, Daniel |
| author_facet |
Lederman, Daniel |
| author_sort |
Lederman, Daniel |
| title |
Large Devaluations, Foreign Direct Investment and Exports : A Speculative Note |
| title_short |
Large Devaluations, Foreign Direct Investment and Exports : A Speculative Note |
| title_full |
Large Devaluations, Foreign Direct Investment and Exports : A Speculative Note |
| title_fullStr |
Large Devaluations, Foreign Direct Investment and Exports : A Speculative Note |
| title_full_unstemmed |
Large Devaluations, Foreign Direct Investment and Exports : A Speculative Note |
| title_sort |
large devaluations, foreign direct investment and exports : a speculative note |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110331131956 http://hdl.handle.net/10986/3386 |
| _version_ |
1764386899130056704 |
| spelling |
okr-10986-33862021-04-23T14:02:09Z Large Devaluations, Foreign Direct Investment and Exports : A Speculative Note Lederman, Daniel ASSETS BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISES BANK POLICY BASKET OF GOODS BENCHMARK CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL INFLOWS COIN CONSUMER GOODS CONSUMERS COUNTRY FIXED EFFECTS CURRENCY CURRENCY CRISES CURRENCY VALUE CURRENT ACCOUNT DEPENDENT VARIABLE DEPENDENT VARIABLES DEPRECIATIONS DEVALUATION DEVALUATIONS DEVELOPING COUNTRIES DEVELOPING ECONOMIES DEVELOPMENT POLICY DIRECT INVESTMENT INFLOWS ECONOMETRIC ESTIMATES ECONOMETRIC EVIDENCE ECONOMIC GROWTH ECONOMICS LITERATURE ECONOMIES OF SCALE ELASTICITY EMERGING ECONOMIES EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE DEVALUATION EXCHANGE RATE DEVALUATIONS EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE SHOCKS EXCHANGE RATES EXCHANGE-RATE EXPLANATORY VARIABLE EXPLANATORY VARIABLES EXPORT GROWTH EXPORT GROWTH RATE EXPORT VOLUMES EXPORTER EXPORTERS EXPORTS FDI FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL SUPPORT FINANCIAL VARIABLES FIXED COSTS FOREIGN AFFILIATES FOREIGN DIRECT INVESTMENT FOREIGN INVESTORS FUTURE RESEARCH GDP GDP PER CAPITA GLOBAL IMBALANCES GROWTH RATE GROWTH RATES HIGH-INCOME COUNTRIES HIGH-INCOME COUNTRY HOST COUNTRY IMPORT IMPORT PRICES INCOME INDUSTRIAL COUNTRIES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL INTERNATIONAL MONEY INTERNATIONAL TRADE INVESTMENT GOODS INVESTMENT INFLOWS LEVY LIQUIDITY LIQUIDITY CRISES MANUFACTURED EXPORTS MANUFACTURING FIRMS MARKET BEHAVIOR MARKET VALUATIONS MERGERS MICRO DATA MISALIGNMENT MNES MONETARY FUND MONOPOLISTIC COMPETITION MULTINATIONAL CORPORATIONS MULTINATIONAL ENTERPRISE MULTINATIONAL ENTERPRISES OPPORTUNISTIC BEHAVIOR POSITIVE COEFFICIENT PRICE INDEXES PRODUCTION COSTS REAL DEVALUATIONS REAL EFFECTIVE EXCHANGE RATE REAL EFFECTIVE EXCHANGE RATES REAL EXCHANGE RATE REAL EXCHANGE RATES REAL EXCHANGE-RATE REGRESSION ANALYSIS RELATIVE PRICES RETURN STANDARD DEVIATION STANDARD DEVIATIONS STOCK MARKET TIME HORIZON TRADE BALANCES TRADE STATISTICS TRADING TRADING PARTNERS TRUST FUND UNCERTAINTY UNDERVALUATION One side-effect of the Global Financial Crisis of 2008-09 was the resurgence of a debate over exchange rates. The conventional wisdom dictates that real-exchange rate adjustments are needed in order to bring about changes in trade balances across countries. However, the literature on the effect of exchange rate fluctuations and currency under-valuations on exports is surprisingly ambiguous. This note explores for the first time the potential role of foreign direct investment as an intermediate variable in the process of trade adjustment after large real-exchange rate changes. Real-exchange rate devaluations might result in increases in foreign direct investment inflows, as investors can take advantage of changes in the foreign-currency value of domestic assets. If so, the response of exports will depend to some extent on the nature of such foreign direct investment inflows, with inflows motivated by "horizontal" foreign direct investment associated with negligible changes in export growth after devaluation. The author utilizes quarterly data on real effective exchange rates, foreign direct investment inflows and exports to explore the effects of large devaluations (defined as the largest observed quarterly real effective exchange rate devaluation) on foreign direct investment and exports from 1990 to 2010. The admittedly speculative evidence suggests that there were heterogeneous experiences regarding the timing and magnitude of subsequent changes in foreign direct investment and exports, but on average foreign direct investment inflows tended to precede export surges within two year horizons. 2012-03-19T18:01:32Z 2012-03-19T18:01:32Z 2011-03-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110331131956 http://hdl.handle.net/10986/3386 English Policy Research working paper ; no. WPS 5619 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region |