The real exchange rate and foreign direct investment in the United States

Abstract

There has been a significant correlation between U.S. inward foreign direct investment and the United States real exchange rate since the 1970s. In this paper we examine the determinants of four measures of inward foreign direct investment to the United States from seven industrial countries over the period 1979–1991. We find strong evidence that relative wealth significantly affects U.S. inward foreign direct investment. We find no evidence that relative wages have a significant impact on the determination of U.S. foreign direct investment