Firm-Specific Assets and the Link Between Exchange Rates and Foreign Direct Investment

By Bruce A. Blonigen. World Scientific Studies in International Economics, 2019

248 citations recorded by the source corpus.

Foreign direct investment (FDI) theory and empirical studies have generated mixed support for a link between exchange rates and FDI. This paper argues that exchange rate movements may affect acquisition FDI because acquisitions involve firm-specific assets which can generate returns in currencies other than that used for purchase. Using data on Japanese acquisitions in the United States across three-digit SIC industries from 1975 to 1992, maximum-likelihood estimates from discrete dependent variable models support the hypothesis that real dollar depreciations make Japanese acquisitions more likely in U.S. industries, particularly those which more likely have firm-specific assets. Copyright 1997 by American Economic Association.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/76bd470a13e5c4525b7789bfb9c83a65afaa94d7

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Citations in the corpus

• The Determinants of Chinese Outward FDI in Countries Along “One Belt One Road” (2017, background): “Taking into account a considerable amount of OFDI is conducted through M&A, Yuan appreciation can systematically lower the cost of acquisitions of certain foreign assets (Froot and Stein 1991) and increase the profitability of firms’ foreign branches and subsidiaries (Blonigen 1997).”