Exchange-Rate-Investment Link: Industry-Level Evidence for OECD Countries

December 12, 2025Open Access

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Key Points

This study examines how sectoral investment responses to exchange rate movements differ across industries in OECD countries.
Utilized a wide OECD country panel including developed and developing economies.
Analyzed the effects of exchange rate levels and volatility on sectoral investments using two datasets: total investment and manufacturing sector data.
Estimated investment equations with Pooled Mean Group approach to account for inter-country heterogeneity.
Exchange rate fluctuations significantly affect sectoral investment primarily in the long term.
Increased exchange rate volatility generally reduces investments in most sectors.
The impact of exchange rate levels varies distinctly between sectors, with depreciating currency affecting non-manufacturing investments negatively while enhancing total manufacturing investments.

Reveals sector-specific investment responses to exchange rate changes in OECD countries, suggesting varying impacts.

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Duygu Yolcu Karadam (2025) studied this question.

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