An investigation of exchange rate, exchange rate volatility and FDI nexus in a gravity model approach

Warren, M.; Seetanah, Boopen; Sookia, Noor

doi:10.1080/02692171.2023.2239719

Cited by 3 publications

(15 citation statements)

References 74 publications

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“…Finally, the recent study of Warren et al (2023) considering different methodologies of panel data (OLS, Fixed Effects, Random Effects, Heckman, Probit, Logit, and PPML) confirmed that economic dimension, geographical distance, and standard language are according to the assumptions of the gravity model. The authors also considered the variable of taxes and exchange rates in this study, and the results demonstrated that these variables are significant with FDI.…”

Section: Literature Reviewmentioning

confidence: 83%

“…Also, the theories of Hood and Young (1979) and Vernon (1966) describe the relationship between economic size and FDI. The studies by Ly et al (2018), Duarte and Carvalho (2018), and Warren et al (2023) find a positive effect on the size of economies and the inward FDI. Furthermore, studies by Leitão (2017), Bi et al (2020), and Okara (2023) also found a positive relationship with statistical significance between income per capita and FDI.…”

Section: H1bmentioning

confidence: 92%

“…Data were collected from the OECD by FDI flows and by partner countries in millions of USD. As mentioned in the literature (Paniagua et al 2015;Mateus et al 2016;Ly et al 2018;Dorakh 2020;Bi et al 2020;Cró and Martins 2020;Warren et al 2023), the data we use for FDI find some negative values or zeros for foreign direct investment flows which do not allow us to use the logarithmic form for these values. In this context, following the recommendations of Santos Silva and Tenreyro (2006) and Paniagua et al (2015), we applied the gravity model comparing the econometric results between the OLS estimator, Poisson Pseudo-Maximum-Likelihood (PPML) estimator and the Panel Quantile Regressions.…”

Section: Methodsmentioning

confidence: 97%

“…Other studies such as Paniagua et al (2015), Mateus et al (2016), Ly et al (2018), Dorakh (2020), Bi et al (2020), Cró and Martins (2020), and Warren et al (2023) introduce new econometric methodologies applied to the gravity model, demonstrating that this should be estimated using the PPML estimator or through panel quantile regression.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Alongside the globalisation of the world economy, the internationalisation of multinational companies occurred more predominantly from the 1990s onwards (Leitão 2011;Júlio et al 2013;Mateus et al 2016;Warren et al 2023).…”

Section: Introductionmentioning

confidence: 99%

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A Gravity Model Analysis of Portuguese Foreign Direct Investment

Leitão

2023

Economies

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Cultural and linguistic affinities have been studied in international business through the gravity model and economics of language. International investment theories enable the assessment of organisational, location, and internalisation motivations. The present study assesses the impact of transport costs, common language and market size based on the arguments of the gravity model, economics of language, and international investment theory. This investigation evaluates the relationship between the Portuguese FDI and the gravity model, using panel data between 2005 and 2020. The OLS estimator, PPML-Poisson Pseudo-Maximum-Likelihood estimator, and panel quantile regressions were used as an econometric methodology. Regarding research, we sought to understand to what extent cultural and linguistic issues, namely Portuguese-speaking countries, contribute to explaining Portuguese FDI. The economic dimension of the Portuguese economy and investor countries were introduced into the regression model. In addition, transportation and transaction costs were analysed across geographical distances. The econometric results show that the common language and cultural aspects are positively correlated with the Portuguese FDI, which allows us to conclude that the Portuguese language reduces the asymmetries between the home market and the host country. When panel quantile regressions are applied, it is possible to observe that the Portuguese economy has dimension enough to attract FDI, just as the countries investing in the Portuguese economy have a return on the investment made. Finally, geographical distance negatively impacts FDI, showing that geographical proximity increases the probability of attracting FDI.

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Section: Literature Reviewmentioning

confidence: 83%

Section: H1bmentioning

confidence: 92%

Section: Methodsmentioning

confidence: 97%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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A Gravity Model Analysis of Portuguese Foreign Direct Investment

Leitão

2023

Economies

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The impact of external debt and exchange rate on foreign direct investment in emerging investment markets: new evidence using a PMG-ARDL panel data analysis

Sultana,

Rahman,

Zimon

2024

Cogent Economics & Finance

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How Does the Exchange Rate and Its Volatility Influence FDI to Canada? A Disaggregated Analysis

Lajevardi,

Chowdhury

2024

JRFM

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This study investigates the relationship between the real effective exchange rate (REER) and its volatility with the net inflow of foreign direct investment (FDI) to Canada, placing a novel emphasis on sector-level analysis. The study utilizes time series data from 2007 to 2022 and employs the autoregressive distributed lag (ARDL) approach to assess short-run and long-run relationships between the said variables. The findings reveal significant impacts of changes in REER, its volatility, and GDP on net FDI in the short run, with lasting effects of REER and its volatility, lagged GDP, and trade openness on FDI in the long run. At the sectoral level, FDI inflows in energy and mining, manufacturing, finance, and insurance exhibit significant sensitivity to changes in REER. Simultaneously, the volatility of REER has a significant impact on FDI inflows in manufacturing industries and the finance and insurance sector in the short run. In the long run, REER exerts a significant influence on the net FDI inflows in energy and mining, as well as manufacturing industries. The asymmetry in findings suggests a need for sector-specific attention to retaining and attracting FDI to Canada.

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An investigation of exchange rate, exchange rate volatility and FDI nexus in a gravity model approach

Cited by 3 publications

References 74 publications

A Gravity Model Analysis of Portuguese Foreign Direct Investment

A Gravity Model Analysis of Portuguese Foreign Direct Investment

The impact of external debt and exchange rate on foreign direct investment in emerging investment markets: new evidence using a PMG-ARDL panel data analysis

How Does the Exchange Rate and Its Volatility Influence FDI to Canada? A Disaggregated Analysis

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