FDI Inflows, Price and Exchange Rate Volatility: New Empirical Evidence from Latin America

Bianco, Silvia Dal; To, Loan Nguyen Cong

doi:10.20944/preprints201608.0212.v1

Cited by 6 publications

(6 citation statements)

References 23 publications

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“…As noted, a 1 percentage point increase in the volatility of the exchange rate will result in a 0.767% point decrease in FDI. This is in line with other studies like Kyereboah‐Coleman and Agyire‐Tettey (2008) and Dal Bianco and Loan (2017). However, despite being significantly responsible for a slight incline in the Mauritius FDI trend in the long term, the magnitude of the coefficient differs by a few percentage points between the models.…”

Section: Resultssupporting

confidence: 93%

Impact of exchange rate and exchange rate volatility on foreign direct investment inflow for Mauritius: A dynamic time series approach

Moraghen

Seetanah

Sookia

2021

African Development Review

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Studies focusing on the determinants of foreign direct investment (FDI) inflow to Sub‐Saharan African countries remain fairly limited. Such existing research mostly focuses on the level of the exchange rate, often ignoring its volatility. This paper assesses the impact of the real exchange rate and exchange rate volatility on FDI flows for the case of Mauritius, one of the best economic performers on the continent. Using dynamic time series analysis, namely a Vector Error Correction Model, over the period 1976–2018, exchange rate volatility was found to negatively impact FDI while depreciating real exchange attracts foreign investors. The openness level, wages, literacy level and tax are also observed to be ingredients of FDI in both the long and short term. Moreover, the analysis validates the dynamic nature of FDI in Mauritius.

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Section: Resultssupporting

confidence: 93%

Impact of exchange rate and exchange rate volatility on foreign direct investment inflow for Mauritius: A dynamic time series approach

Moraghen

Seetanah

Sookia

2021

African Development Review

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“…The overall effect is that the volatility of the domestic exchange rate automatically triggers “the option to wait” on future investments leading to the observed negative relationship between FDI and the domestic EXRV . Our results support earlier studies that have found domestic EXRV to discourage FDI inflows (Asamoah et al., 2016; Balaban et al., 2019; Cavallari & d'Addona, 2013; Dal Bianco & Loan, 2017; Jehan & Hamid, 2017). However, not all studies are in tandem with our results as it contradicts studies that have found no significant impact of exchange rate volatility on FDI inflows (Abbot et al, 2012; Chowdhury & Wheeler, 2015; Dhakal et al., 2010).…”

Section: Regression Resultssupporting

confidence: 92%

Exchange rate uncertainty and foreign direct investment in Africa: Does financial development matter?

Asamoah

Alagidede

Adu

2022

Review Development Economics

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The orthodox view is that uncertainty deters investments and, by extension, private capital inflows. Paying specific attention to the volatility of the domestic exchange rate, foreign direct investment (FDI), and financial development indicators, this study investigates the impact of exchange rate uncertainty on FDI and whether financial development matters in such association. We establish our empirical relationship with a system general methods of moments (GMM) two‐step robust estimator with orthogonal deviations. We found evidence supporting a nonlinear U‐shaped relationship between uncertainty and FDI and that the impact of uncertainty on FDI depends on varying levels of uncertainty. We also document that uncertainty deters FDI flows and that countries with a well‐functioning financial development can transform the adverse impact of volatility on FDI. However, curbing the adverse effect depends on the specific indicator and the threshold value of financial development (financial institutions or financial markets).

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“…Furthermore, the outcomes of some of the studies confirm that the exchange rate instability may substantially reduce FDI inflows in an economy, as the exchange rate fluctuations contribute toward financial risk and uncertainty (Dixit and Pindyck, 1994; Bianco and Loan, 2017). However, the results of other studies have rejected the possible impact of the currency value fluctuations and uncertainty on FDI inflows probably because of other economic variables such as potential demand, political agreements and growing economic environment in the host countries that are able to stimulate foreign investors in the long run (Dehn, 2000; Dhakal et al , 2010).…”

Section: Underpinning the Theoretical And Empirical Literaturementioning

confidence: 90%

Examining the nonlinear impact of selected macroeconomic determinants on FDI inflows in India

Sharma

Kautish

2020

JABS

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Purpose Over the years, India has witnessed irregular FDI inflows. Therefore, this study aims to explore the asymmetric impact of per capita income, final consumption expenditure, globalization index and exchange rate on FDI inflows in India. Design/methodology/approach Using the nonlinear autoregressive distributed lag bounds framework and unknown structural break, the study investigates the impacts of selected macroeconomic variables in driving FDI inflows in India during the study period (1979-2016). Findings The outcomes of the study confirm the asymmetric relationship between FDI inflows and its determinants during the study period. The results have confirmed that the improvement in per capita income, private consumption expenditure, globalization index and currency value appreciation play a crucial role in increasing FDI inflows in India. In contrast, the downside movements in the volume of consumption expenditure, globalization index and depreciation of the currency value in relation to the trade partners result in reducing the volume of FDI inflows in the long run. Originality/value For determining FDI inflows, previous studies have considered the overall impact of its potential determinants, which may provide partial information about the phenomenon. The adopted nonlinear approach highlights that both the types of fluctuations (i.e. upside and downside) in the independent variables may affect FDI inflows differently and substantially. The nonlinear association between FDI and selected determinants may be vital in formulating a long-term policy.

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FDI Inflows, Price and Exchange Rate Volatility: New Empirical Evidence from Latin America

Cited by 6 publications

References 23 publications

Impact of exchange rate and exchange rate volatility on foreign direct investment inflow for Mauritius: A dynamic time series approach

Impact of exchange rate and exchange rate volatility on foreign direct investment inflow for Mauritius: A dynamic time series approach

Exchange rate uncertainty and foreign direct investment in Africa: Does financial development matter?

Examining the nonlinear impact of selected macroeconomic determinants on FDI inflows in India

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