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- Title
Uncertainty, Flexible Exchange Rates, and Agglomeration.
- Authors
Ricci, Luca
- Abstract
This paper shows that exchange rate volatility promotes agglomeration of economic activity. Under flexible rates, firms prefer to locate in large countries, where they would enjoy lower variability of sales, thus reinforcing concentration of firms in such locations. Empirical evidence on OECD countries demonstrates that for small (large) countries or currency areas, exchange rate volatility has a long-run negative (positive) effect on net inward FDI flows. Two implications arise: creating a currency area fosters agglomeration towards the area and dispersion within the area.
- Subjects
FOREIGN exchange rates; MARKET volatility; ECONOMIC activity; MONETARY unions; ECONOMIC structure; FINANCIAL markets; ECONOMIC indicators
- Publication
Open Economies Review, 2006, Vol 17, Issue 2, p197
- ISSN
0923-7992
- Publication type
Article
- DOI
10.1007/s11079-006-6810-9