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• W2993400174 abstract "The G-8 Summit held at Sea Island, Georgia, on June 8-11, 2004, exemplified the increasing global integration of the United States economy.1 Every year, capital flows both out from (hereafter FDI) and into the United States (hereafter FDIUS) to facilitate global trade liberalization.2 The literature on foreign direct investment to developing countries is abundant (Finance India, 1996; Bosworth & Collins, 1999) but disproportionately low on FDIUS (Hymer, 1976; Lowe, 2004). This latter form contributes to annual U.S. gross domestic product (GDP). In 20O3, one of eleven trillion dollars totaling the GDP was due to exports.3 In the same year, part of total imports composed 45 percent of intermediate and unfinished goods used in the U.S. for final products. Subsidiaries of foreign companies in this country supported 21.6 million jobs in 2003, including Pirelli Tire and Siemens in Georgia and Toyota in Alabama and West Virginia (Hall, 2004).In recent years, however, FDIUS had shown wide fluctuations in per-month fiveyear averages from $10.58 billion (1986-1990) to $8.61 billion (1991-1995), from $46.89 billion (1996-2000) to $23.08 billion between 2001 and 2002. For detailed information, see Table 1. The purpose of this article is to examine the question of what proportion of the said fluctuations was caused by Federal Reserve interest rate policy actions or currency exchange rate variations by using a Taylor-type FDIUS optimal rule equation through a dynamic linear model (Taylor, 1993; Ball, 1999). The period covers 1975:01 through 2002:12 per-month. Results from this study will enhance current insight into the relationships between FDIUS and the interest, exchange, and inflation rates. This study will also estimate changes in FDI caused by one percentage point change in interest rates or one index point change in exchange rates. Such information is useful for people daily engaging in monetary policy initiatives and exchange rate issues.The ModelThe second equation is inflation targeting, while the third sets the relationship between exchange and interest rates. Equation 2 may also be viewed as an open economy Phillip's curve with some rational expectations. The Taylor-type efficient rule equation is derived from all three equations. Contemporaneous inflation rate is affected by the lagged state variable, e.g., FDIUS growth rate, lagged inflation, and the gap in lagged exchange rate.DataThe FDIUS time series is based upon the Department of Commerce release on international transactions published in the Federal Reserve Bulletin as the net change in FDIUS. Two transformations on the level value of FDIUS series were made, one in proportion to GDP (Krugman & Obstfeld, 2003), the other in growth rate. The former is a conventional measure, but the latter is a new attempt to explore the relationship between FDIUS, interest rate, and exchange rate. This novel attempt has two significant points: (1) FDIUS in proportion to GDP is a very small number; and (2) a new measure constructed in the format used by Friedman on rate of change in money stock (Friedman, 1959) may provide additional information on relationships under investigation. One example of the latter is one set of the policy variables providing better fit to data than the other set.A positive FDIUS level indicates capital inflows to the U.S.; e.g., foreign investors sent money to the U.S. by obtaining lasting interest in a business enterprise and, therefore, owned or controlled at least ten percent of a business in this country (Anderson, 2003; Lowe, 2004). Likewise, a positive FDIUS growth rate means the total amount of investment in plants and businesses in the U.S. is bigger than the previous month's. For consecutive months, a larger growth rate over consecutive periods indicates a faster accumulation in FDIUS; smaller values imply slower buildup in FDIUS. A negative FDIUS growth rate means that capital inflow has been reduced. …" @default.
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• W2993400174 date "2005-10-01" @default.
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• W2993400174 title "Foreign Direct Investment in the United States: Interest Rate and Exchange Rate" @default.
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