The Impact of Misalignment on FDI in the Developing Countries

Abdessalem Gouider and Ridha Nouira
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Abdessalem Gouider: Department of Economics, College of Economics and Administration Sciences, Al-Imam Muhammad Ibn Saud Islamic University (IMSU),PO Box 5701 Riyadh, Saudi Arabia.
Ridha Nouira: UREP, University of Sfax, Sfax 3000, Tunisia.

International Journal of Economics and Financial Issues, 2014, vol. 4, issue 4, 784-800

Abstract: This paper contributes to a current and intense debate among economists concerning the impact that real exchange rate misalignment can have on FDI. To identify the degree of misalignment, a model of Edwards in Panel will be estimated for a sample of 52 developing countries over the period 1980-2010. Once the misalignment values are determined, they will be included in the FDI model. The results prove that the misalignment is a main determinant of the FDI in the developing countries. Indeed, the overvaluation has a negative and significant effect on the FDI while undervaluation does not have a significant effect on it. Finally, a persistent overvaluation in developing countries can slow down the flow of FDI to these countries, whereas the persistent undervaluation stimulates these flows.

Keywords: Foreign direct investment; Overvaluation; Undervaluation (search for similar items in EconPapers)
JEL-codes: C21 C23 F31 F33 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2014-04-09

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