Exchange rate regimes and FDI in developing countries: A propensity score matching approach

David O. Cushman, Glauco De Vita

    Research output: Contribution to journalArticlepeer-review

    18 Citations (Scopus)
    304 Downloads (Pure)

    Abstract

    Theory suggests that regimes of relatively fixed exchange rates encourage inward foreign direct investment (FDI) relative to regimes of more flexible exchange rates. We use propensity score matching (PSM) to investigate the relationship between the exchange rate regimes of 70 developing countries and FDI into such countries using de facto regime classifications. We include a large number of variables in the logit equation that estimates the propensity score, the probability of regime choice. We also use general-to-specific modeling to get alternative, parsimonious versions. Based on four matching procedures, the average treatment effects suggest, with overall modest statistical significance, that relatively fixed de facto regimes do encourage FDI compared with relatively floating regimes. In addition, the estimated effects are sometimes economically large.

    Publisher Statement: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of International Money and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Money and Finance, [77, (2017)] DOI: 10.1016/j.jimonfin.2017.07.018

    © 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
    Original languageEnglish
    Pages (from-to)143-163
    Number of pages21
    JournalJournal of International Money and Finance
    Volume77
    Early online date18 Jul 2017
    DOIs
    Publication statusPublished - Oct 2017

    Keywords

    • Foreign Direct Investment
    • Exchange rate regime
    • Developing countries
    • propensity score matching

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