Effect of exchange rate, exchange rate volatility, and stock market return on foreign direct investment

Abstract

This empirical research examines the relationship between exchange rate, exchange rate volatility, and also investigates the stock market return factors on the foreign direct investment flows in Thailand. This research uses the quarterly data from 1Q2005 to 4Q2020 period. It finds that there is the evidence of significantly positive relationship of exchange rate on foreign direct investment while exchange rate volatility has the significantly negative relationship on foreign direct investment. There is also the relationship but not significant of high performance of stock market return on attracting foreign direct investment flows. Moreover, this paper documents that the former foreign direct investment itself and real exchange rate influence the investor’s FDI decision in current period as well. The vector autoregression model (VAR) is used for forecasting. The finding indicates that 1-quarter lagged of FDI itself is positively significant affecting the current FDI flows.