Vertical FDI and exchange rates over the business cycle: The welfare implications of openness to FDI

• 成果类型: Article
• 署名作者: Shi, Jiao
• 署名单位: Peking University; Peking University Shenzhen Graduate School (PKU Shenzhen)
• 刊物名称: JOURNAL OF DEVELOPMENT ECONOMICS
• ISSN/ISSBN: 0304-3878
• DOI: 10.1016/j.jdeveco.2019.01.004
• 发表日期: 2019
• 页码: 274-293
• 关键词: foreign direct investment; Exchange rates; Gains from openness

摘要

It has long been observed that a country tends to receive increased net foreign direct investment (FDI) inflow when its currency depreciates. We build an open-economy macroeconomic model that accounts for the positive correlation, and re-examine the welfare implications of FDI, focusing mainly on the short run. We show that short-run FDI fluctuations exacerbate utility loss over business cycles in an environment with monetary shocks, but have little impact on welfare over business cycles caused by productivity shocks. The best outcome occurs when the economy retains long-run FDI, but restricts short-run movements in the production location of firms.