FDI, Exchange Rate Volatility and Financial Development: Regional Differences In Emerging Economies

Maroula Khraiche and Jeffrey Gaudette ()
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Jeffrey Gaudette: Colorado College

Economics Bulletin, 2013, vol. 33, issue 4, 3143-3156

Abstract: This paper evaluates the importance of an economy's financial development in determining the effect of exchange rate volatility on foreign direct investment (FDI) for a panel of 39 emerging economies over 35 years. Results show that the impact of exchange rate volatility on FDI in economies with lower financial development tends to be significant and positive, but the effect is not significant for countries with greater financial development. One explanation for such results is that firms may require less FDI to hedge against exchange rate uncertainty when financial markets are deeper.

Keywords: Real Exchange Rate Volatility; FDI; Financial Development (search for similar items in EconPapers)
JEL-codes: F0 F2 (search for similar items in EconPapers)
Date: 2013-12-31
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Citations: View citations in EconPapers (2)

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