 Exchange rate uncertainty and foreign direct investment in Africa: Does financial development matter?Michael Effah Asamoah, Imhotep Alagidede () and Frank Adu Review of Development Economics, 2022, vol. 26, issue 2, 878-898 Abstract: 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). Date: 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:rdevec:v:26:y:2022:i:2:p:878-898 Ordering information: This journal article can be ordered from Access Statistics for this article Review of Development Economics is currently edited by E. Kwan Choi More articles in Review of Development Economics from Wiley Blackwell |
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