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Impact of an unexplained component of real exchange rate volatility on FDI: Evidence from transition countries

Suzana Balaban, Dejan Živkov () and Ivan Milenković

Economic Systems, 2019, vol. 43, issue 3

Abstract: The aim of this paper is to examine the impact of an unexplained component of real exchange rate volatility on FDI in transition economies. We make an attempt to overcome some problems associated with previous studies; the aggregation problem, inadequate measures of volatility, short-run focus and the endogeneity problem. Using a GARCH specification, we focus on long-run volatility, while we control for the endogeneity problem by applying SYS-GMM estimation. The obtained results show that the impact of the unexplained component of real exchange rate volatility on FDI differs among economic activities since 2000. As part of the re-estimation exercise, we use two alternative measures of volatility to avoid arbitrariness. The obtained results are to a large extent in accordance with the first one.

Keywords: Exchange rate volatility; GARCH; FDI; Transition countries; SYS-GMM (search for similar items in EconPapers)
JEL-codes: C22 C33 C36 F21 F31 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:43:y:2019:i:3:s0939362518300414

DOI: 10.1016/j.ecosys.2019.100719

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