Economic theory provides two main explanations why changes in exchange rates can affect foreign direct investment (FDI …). According to a first explanation, FDI reacts to exchange rate changes if there are information frictions on capital markets and … explanation, FDI reacts to exchange rate changes if output and factor markets are segmented, and if firm-specific assets are …

In this paper we analyze the conditions under which a foreign direct investment (FDI) involves a net capital flow … find that the financing choice is driven by managerial incentive problems and that FDI involves an international capital …