Exchange Rate as a Determinant of Foreign Direct Investment: Does it Really Matter? Theorical Aspects, Literature Review and Applied Proposal

This paper re-examines the role of exchange rates as determinantof FDI. It extends the analysis to include the issue of how exchange rates determinethe decision of invest in one country depending on whether the firm is deciding toinvest on the country to service the local market or to invest on the country in orderto re-export. This paper offers a broad literature review of the state of the empiricalresearch in order to draw conclusions of the real importance of the exchange rateas a determinant of FDI. Details of FDI current behavior in Latin American aredescribed and I propose a model of FDI to be applied for these countries. Datasources are given.