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Do exchange rates have any impact on foreign direct investment flows in the Asia : Experiences of Korea

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  • Do exchange rates have any impact on foreign direct investment flows in the Asia
  • Seo, Jung-Soo; Tarumun, Suwardi; Suh, Chung-Sok
  • The Association of Korean Economic Studies


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Title Do exchange rates have any impact on foreign direct investment flows in the Asia
Similar Titles
Sub Title

Experiences of Korea

Material Type Proceedings
Author(English)

Seo, Jung-Soo; Tarumun, Suwardi; Suh, Chung-Sok

Publisher

[Seoul, South Korea]:The Association of Korean Economic Studies

Date 2002-07
Pages 19
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Direct Investment
Holding Kar-yiu Wong website

Abstract

Theories present that exchange rate movements in imperfect capital markets cause two distinctive effects. One is the wealth effect arising from the higher value of foreign exchange compared with local currencies, and thus positively influences FDI. The other is the competitiveness effect, which makes wage costs and thus tradeable goods in the host country cheaper, having a positive effect on the inward FDI. This paper examined the link of exchange rate with FDI flows to Korea during 1985-2000 by separating the wealth effect from the competitiveness effect. The OLS results show that exchange rate level was consistently positive influence on FDI flows. The results supported neither the wealth effect hypothesis nor that inward FDI to Korea was not cheap labor oriented.

User Note

A paper prepared for the conference on 'Korea and the World Economy', 21-22 July 2002, Seoul, South Korea.