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Exchange Rate Volatility and Investment: A Panel Data Cointegration Approach

Ibrahima Diallo ()

Expert Journal of Economics, 2015, vol. 3, issue 2, 127-135

Abstract: This paper examines the link between real exchange rate volatility and domestic investment by using panel data cointegration techniques. We study the empirical connection between real effective exchange rate volatility and investment for 51 developing countries (23 low-income and 28 middle-income countries). The theoretical relationship between investment and real exchange rate volatility predicts that the effects of exchange rate uncertainty on profits are ambiguous. The empirical results illustrate that real effective exchange rate volatility has a strong negative impact on investment. This outcome is robust in low income and middle income countries, and by using an alternative measurement of exchange rate volatility.

Keywords: exchange rate volatility; investment; appreciation; depreciation; panel data cointegration; capacity principle (search for similar items in EconPapers)
JEL-codes: O11 O16 O19 O57 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Exchange Rate Volatility and Investment, A Panel Data Cointegration Approach (2008) Downloads
Working Paper: Exchange rate volatility and investment: a panel data cointegration approach (2007) Downloads
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