文档介绍：Soulhern Economic Journal 2009, 76(2), 419-443
Foreign Direct Investment and Inflation
Selin Sayek*
Multinational etiterprises (MNEs) are able to shift investments between home and host
countries to minimize the negative effects of changes in the macroeconomic environment. This
article formalizes a model that allows studying this investment-smoothing behavior of MNEs
facing inflation taxes in both the home and the host country. The MNE is allowed to invest in
two economies, home and host, and to fmance its foreign direct investment (FDI) either
through domestic or foreign sources. The investment smoothing by the MNE is studied for
cases of both vertical and horizontal FDI. The results suggest FDI is used as a hedging tool,
mitigating the effects of inflation taxes even if there are no formal hedging mechanisms. The
investment-smoothing reaction of MNEs depends on the reason for investment, the fmancing
sources of FDI, and the substitutability between factors of production. Finally, this investment-
smoothing possibility (FDI) reduces the real negative effects of inflation.
JEL Classification: E31, F21, F23
1. Introduction
In recent years interest in understanding the determinants of foreign direct investment
(FDI) has intensified hand in hand with an increasing volume of FDI flows. From 1990 to
2005, the total worldwide FDI inflows increased from $203 billion to $974 billion. Almost
all developing countries peting to attract a major share of these inflows. In fact, the
share FDI inflows in the gross domestic product (GDP) of middle e countries
has risen from % in the 1970s to % between 1985 and 1994, and to % between
1995 and 2005.' The petition to attract more FDI has led to changes in the
regulatory frameworks provided by almost all countries. According to the recent World
Investment Report (UNCTAD 2003), during the period 1991-2002, around 95% of the
changes in worldwide laws governing FDI have been favorable to