Theories related to the casual linkage between exchange rate and foreign direct investment (FDI) began to appear in the 1970s and since then a significant number of theories and empirical evidences have been documented. For example, the theories of Cushman (1985), Froot and Stein (1991), Blonigen (1997) and Kohlhagen (1977) are said to have shed a light for subsequent theoretical and empirical investigations. Among others, the theoretical works of Froot and Stein (1991), and Blonigen (1997a) have been the two most influential theories that have changed the vicious thoughts of academicians on the relationship between exchange rates and FDI. Froot and Stein, and Blonigen suggest that the impact of exchange rates on FDI depends on the contribution
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Blonigen (1997b) theory indicates that a foreign firm gets motivated to acquire a local firm/s (or assets) if a host country’s currency depreciation is able to bring a special advantage. The theory of Boliden which is based on the assumption of market segmentation indicates that foreign and domestic firms can have the same opportunity to fulfill their material needs from domestic and international markets, but the rate of return on their assets may greatly differ based on their firm’s specific factors, such as experience, international market linkage, etc. The essence of currency fluctuation is both a threat and an opportunity for an investor who considers the options of foreign direct investment or export to serve international markets. Despite several theories support the positive relationship between currency depreciation and foreign direct investment, other theories express their concern over the potential damage of currency movements on the value of assets acquired by a foreign investor in a sovereign country. Hence, the number of literatures documenting the effects of exchange rate risk and uncertainty on a firm’s decision to export or serve overseas market through foreign direct investment has increased, specially after the prevalence of globalization in the 1980s and
Blonigen (1997b) theory indicates that a foreign firm gets motivated to acquire a local firm/s (or assets) if a host country’s currency depreciation is able to bring a special advantage. The theory of Boliden which is based on the assumption of market segmentation indicates that foreign and domestic firms can have the same opportunity to fulfill their material needs from domestic and international markets, but the rate of return on their assets may greatly differ based on their firm’s specific factors, such as experience, international market linkage, etc. The essence of currency fluctuation is both a threat and an opportunity for an investor who considers the options of foreign direct investment or export to serve international markets. Despite several theories support the positive relationship between currency depreciation and foreign direct investment, other theories express their concern over the potential damage of currency movements on the value of assets acquired by a foreign investor in a sovereign country. Hence, the number of literatures documenting the effects of exchange rate risk and uncertainty on a firm’s decision to export or serve overseas market through foreign direct investment has increased, specially after the prevalence of globalization in the 1980s and