DO EXCHANGE-RATE CHANGES DRIVE FOREIGN DIRECT-INVESTMENT

This article uses transaction-specific data on foreign acquisitions of U.S, targets during 1975-89 to explore the relationship between the value of the dollar and the flow and prices of cross-border acquisitions. The article examines the robustness of prior test results with respect to the foreign investment measure, the exchange rate measure, and inclusion of a relative wealth proxy. The results uncover several new findings. For example, there is no statistically significant relationship between the level of the exchange rate and foreign investment relative to domestic investment after controlling for relative corporate wealth and the overall level of investment.