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Exchange Rate Regimes and Foreign Direct Investment Flows to Developing Countries

Authors

  • Andrew Abbott,

    Corresponding author
    1. Business School, University of Hull, Hull HU6 7RX, UK
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  • David O. Cushman,

    Corresponding author
    1. Department of Economics and Business, Westminster College, New Wilmington, PA 16172, USA; Department of Economics, University of Saskatchewan, Saskatoon, SK, S7N 5A5, Canada
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  • Glauco De Vita

    Corresponding author
    1. Faculty of Business, Oxford Brookes University, Oxford OX33 1HX, UK
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    • Cushman gratefully acknowledges his appointment as a visiting fellow at the Faculty of Business of Oxford Brookes University, which was conducive to the research collaboration underlying this paper. Preliminary analyses for this study benefited from prior work undertaken by De Vita and Abbott as part of a project funded by the ESRC grant RES-000-22-2350, which is gratefully acknowledged.


Abbott: Business School, University of Hull, Hull HU6 7RX, UK. Tel: +44-1482463570; Fax: +44-1482467500; E-mail: a.abbott@hull.ac.uk. Cushman: Department of Economics and Business, Westminster College, New Wilmington, PA 16172, USA; Department of Economics, University of Saskatchewan, Saskatoon, SK, S7N 5A5, Canada. De Vita: Faculty of Business, Oxford Brookes University, Oxford OX33 1HX, UK.

Abstract

Drawing on recent advances in exchange rate regime classifications, the paper examines empirically the effect of exchange rate regimes on foreign direct investment (FDI) flows to developing countries. Using system generalized methods of moments estimation on a panel of 70 developing countries for the period 1985–2004, we find that developing countries adopting de facto fixed or intermediate regimes significantly outperform those opting for a flexible exchange rate system in attracting FDI flows. No statistically significant differences in the FDI-inducing properties of fixes, intermediates and floats are found using the International Monetary Fund official classification.

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