Foreign Direct Investment: Effects of a 'Cheap' Dollar [Updated October 24, 2007] [open pdf - 125KB]
From the Document: "Since 2002, the dollar has depreciated against a broad basket of currencies and against the euro. This depreciation has prompted some observers to question whether the 'cheap' dollar is leading to a 'fire sale' of U.S. firms, especially of those firms that can be identified as part of the Nation's defense industrial base. Congress has displayed a long and continuing interest in foreign direct investment and its impact on the U.S. economy. Since September 11, 2001, Congress has demonstrated a heightened level of concern about the impact of foreign direct investment in critical industries or in sectors that are vital to homeland security. […] Academic research and analysis has been relatively limited on the topic of the relationship between a depreciated dollar and any impact on foreign purchases of U.S. firms. There is also a relatively limited amount of information on this topic. Nevertheless, direct investment transactions as a whole seem to be tied more directly to the relative rates of economic growth between economies, as well as expected long-run rates of return and other economic factors, than to relatively short-term movements in the exchange rate of the dollar. Actual and expected movements in the exchange rate may influence the timing and the magnitude of foreign investors' decisions, but little research has been done on this issue."
CRS Report for Congress, RL34000