ABSTRACTThis paper investigates the determinants of Canadian direct investment in Northern New York, focusing on the influence of changing foreign exchange rates. Hypotheses are formulated that new investment should be positively related to the value of the U.S. dollar while expansions of existing facilities ought to be unrelated to exchange rate movements. These predictions are supported by the data. Since Canadian investment is found to behave quite differently from domestic‐source investment, we conclude that other factors besides exchange rates account for much of this difference