Economists and those that know economics, help please

Does a weaker dollar encourage foreign investment in our economy and lead to greater exports?

I'm not seeing it.

Maybe that's just me.

Belly Up.

Then the investors want to leave.

So while in theory that's correct. You also have to have exportable goods.
I don't think that McDonalds will be prepackaging Big Macs.

I don't think it would necessarily lead to foreign investment as money seeks the best returns. Investing their currency in an investment that is valued in a currency that is declining in value has to be taken into consideration when calculating the best places for investing.

As for greater exports, besides defense industry manufacturing, I don't know what else we manufacture and export these days. We are largely a service based industry.

California wine too, and Ice Machines.

One other export is tourists. That is, foreign tourists who come to the US, because it has become a cheaper place to visit, count as an export. I made my own trip to Europe, in part because I had a good exchange rate in 2001.

Ironically enough, while on a train in Deutschland I saw a backpack that said "Made in the USA" whereas my own backpack said "Made in China". I also found, bizarrely enough, that Swiss made Ricola cough drops were more expensive in Switzerland than they are in the US.

It doesn't necessarily encourage foreign investment. Profit potential does that in nearly all cases. Currency strength doesn't seem to apply any leverage to the models that predict in-flow of foreign cash.

As to an improvement in Net Exports, yes, that's the monetary theory.

It's never happened to any statistically significant degree, though. My take is that the theory only applies over a long term, and when several large economies are competing, thc shifting of supply and demand in the microeconomies in each of those countries shift rapidly enough that the currency values fluctuate rapidly enough to prevent the equilibrium needed for the theory to work in practice.
The Professor

Crap from China is still cheaper and will be until China allows its currency to float.

And it works the other way too. I used to import stuff from the UK; now it's too expensive to bother.

Put another way, if we had a stronger dollar the trade deficit would probably be worse than it already is.

Note this was published in 2004:

How the weak dollar hurts the U.S.
If the weak dollar continues to hinder foreign investment in the United States, that could force up yields on government bonds, because higher rates would be needed to attract investors. And bond yields have a direct impact on a wide variety of interest rates paid by consumers and businesses, including mortgage rates.

The weak dollar also means many goods produced overseas with little domestic competition -- such as clothing or electronics -- could end up costing more here. And if Americans keep buying higher-priced imports, that could lead to an even larger trade deficit, which in turn would put further pressure on the dollar.

snip

There is some upside to dollar weakness, since many big U.S. companies get a bump in sales overseas, where their products become more competitive. For example, Procter & Gamble reported sales grew 3 percent in the third quarter due strictly to changes in currency exchange rates, bringing in an extra $365 million in company coffers.

And manufacturers such as U.S. automakers typically cheer a weaker dollar, even though the weakness tends to benefit producers of commodities such as steel more than makers of finished products such as autos.

U.S. tourism is another industry that can see a lift from a weaker dollar. Foreigners are more likely to visit because their home currencies can buy more here, and U.S. vacationers who might otherwise travel abroad are more likely to stay home if the weak dollar makes an overseas trip too costly.

more, it is worth reading, imo, for general, non-date specific info.

http://money.cnn.com/2004/11/10/news/economy/weakdollar/index.htm

While that is correct in theory, it has never actually happened. A lot of these theories require time for currency stabilization in excess of what's available in that speculative and volatile environment.

So, while this article explains what could and should happen, there isn't any evidence that is actually ever has.

There are lots of conventional economic theories that fit this description.
The Professor

even more so given the current state of affairs economically. I wasn't intending to mislead the poster, I was only attempting to provide a "snapshot" of very general info.

I was agreeing with you. I knew where you going, i was just amplifying that it's conventional theory. It just doesn't happen that way very often, if at all.
GAC

I thought I would learn something useful when I took an econ course specifically designed for us M.A.L.S. students (theories but no math involved). Was I wrong! Half of it I didn't understand and the I half I did understand I didn't believe!I think Bohm Bawerk (sp.?) and the whole Austrian school was my downfall...

Warning: Economics lesson ahead . Quit now if economics makes you sleepy or prone to nausea.

You see this in economics texts. The problem with this is the usual "background" or economic conditions that classical economics takes for granted no longer applies. The Bush Administration has totally skewed the whole thing. They have done things no right-thinking economist would allow.

Most traditional texts relative to the dollar assert that yes, a lower dollar stimulates foreign investment and leads to greater exports. However, if the countries that traditionally invest here have significant dollar assets, we enter uncharted territory. That's the case now. China , Japan, Euro banks and private investment firms hold lots of US Govt paper (bonds) which is their traditional "hedge" against market downturns. This is a dollar denominated asset. Dr John Rutledge has a great take on this which is where I'm at also as a $ Manager:

There are two main fault lines in the thinking about all this--issues where you have to stand on one side or the other. The first is whether you are focused on agregate demand or on the capital markets. The second is whether you are focused on the trade accounts or on the capital accounts. Here's what I mean.

Most of what you read about macroeconomics focuses on who--consumers, businesses, government, foreigners--is spending how much money. Spending more money is good; spending less money is bad. To these guys, cheapening your currency is almost always "good" for the economy. I think this approach is a load of crap. It never works.

I like, instead, to focus on the capital accounts for a simple reason. Size matters. Our $11 trillion GDP last year is dwarfed by our $155 trillion balance sheet. Or, as James Carvell would have said, "It's the assets, stupid." This line of thinking forces you to focus on the capital stock (which determines productivity) rather than on spending. And it forces you to focus on who wants to hold the existing assets, not on who wants to buy the new assets (flows of funds analysis of saving, budget deficits) when thinking about interest rates. I have used this framework since the Reagan days and made a lot of money with it. It works.

Remember that there is no such thing as bankruptcy courts for nations, but there are currency exchange markets where the assets are "seized" in laymen's terms. The cheaper the US Dollar, the cheaper as well American labor, American buildings, equipment, land, even entire firms to an outsider, especially if the outsider is vested in, say, Euros or Pounds Sterling.

As the Dollar continues to drop, expect a rise in cases of foreign firms coming in attempting to buy up American firms. At least, that's how the theory looks on paper.

for them to simply purchase companies, toll roads, our politicians...to invest means something GOOD for america...it is not an investment in america is it a fire sale on our assets. so while we should 'invest' in education, infrastructure etcetera, foreign companies have no interest in 'investing' in americas future!