Title page for ETD etd-04172012-105149


Type of Document Dissertation
Author Parajuli, Shanta
URN etd-04172012-105149
Title Examining the Relationship between the Exchange Rate, Foreign Direct Investment and Trade
Degree Doctor of Philosophy (Ph.D.)
Department Agricultural Economics & Agribusiness
Advisory Committee
Advisor Name Title
Kennedy, Lynn P. Committee Chair
Westra, John V. Committee Member
Harrison, Wes R. Committee Member
Salassi, Michael E. Committee Member
He, Hongyu Dean's Representative
Keywords
  • Exports
  • Granger Causality
  • Mexico
  • Exchange Rate
  • Foreign Direct Investment
Date of Defense 2011-11-28
Availability unrestricted
Abstract
Extensive research has been carried out on the relationships among foreign direct investment (FDI), exports, the exchange rate, and economic growth. However, these research findings are mixed and inconclusive. Therefore, further research and discussion are needed on this topic. This study focused on Mexico, since it is one of the major FDI recipient countries in Latin America and much of its trade is a result of its free trade agreements. This study examines the relationship between FDI, exports, and economic growth in the context of FDI from developed to developing countries (Mexico).

The second chapter analyzes the relationship of FDI with the level of the exchange rate, exchange rate volatility, and exchange rate expectations during the period from 1994 to 2008. The analysis revealed a significant impact of level of exchange rates and exchange rate expectations on FDI flows. Regional trade agreements, such as the European Union (EU) and the North American Free Trade Agreement (NAFTA), were important factors to attract FDI.

The third chapter examines the long-run relationship between U.S. FDI and U.S exports to Mexico from 1988Q1 to 2008Q4. This analysis found a complementary (positive) relationship between FDI and exports. However, the strength of the relationship differs with different types of FDI. The analysis further revealed a weak complementary relationship with exports of processed food and a strong positive relationship with manufacturing exports. The study also showed a significant impact of NAFTA on manufacturing and total FDI and an insignificant impact on processed food FDI.

Chapter four examined Granger causality among GDP, exports, and FDI in Mexico for the period of 1970 to 2008. The causality was tested from the bivariate to the multivariate framework using Toda and Yamamoto (1995) and Doland and Lutkepohl (1996) (TYDL) methodologies. An important finding in this study is the Ganger causality from gross fixed capital formation and labor force to imports. The results suggest that the Granger causality between GDP and exports; FDI and GDP; exports and FDI observed in two, three or four variable frameworks are through a channel of imports.

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