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Exchange Rates and U.S. Foreign Direct Investment in the Global Processed Food Industry

Published online by Cambridge University Press:  15 September 2016

Christine Bolling ,
Mathew Shane  and
Terry Roe
Christine Bolling
Affiliation:
Economic Research Service of the U.S. Department of Agriculture
Mathew Shane
Affiliation:
Economic Research Service
Terry Roe
Affiliation:
Economic Development Center at the University of Minnesota
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Abstract

This paper focuses on estimating the effects of the real FDI-weighted exchange rate on real U.S. foreign direct investment (FDI) in the global processed food industry. We use a straightforward production possibility framework as our theoretical basis to demonstrate the shift of production between countries on the basis of exchange rate fluctuations. The log-log regression model, derived from the theoretical model, gives statistically robust results to show that for the years 1983 to 2002, the exchange rate fluctuations, the level of fixed capital in the U.S. food industry, and the cost of materials in both the United States and abroad were major determinants of the stock of U.S. FDI in the global processed food industry. As the dollar appreciated, U.S. FDI increased. An overall conclusion is that countries with an undervalued exchange rate will experience increased FDI. Countries with overvalued exchange rates incur costs from lost export opportunities for domestic firms as well as discourage FDI.

Keywords

U.S. foreign direct investment (FDI)global processed food industryFDI-weighted exchange rates
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 36 , Issue 2 , October 2007 , pp. 230 - 238
Copyright
Copyright © 2007 Northeastern Agricultural and Resource Economics Association 

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