Exchange rates and foreign direct investment: evidence for sub-saharan Africa

Adil Suliman, Khaled Elmawazini () and Mohammed Zakaullah Shariff ()
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Mohammed Zakaullah Shariff: Gulf University for Science and Technology, Kuwait

Journal of Developing Areas, 2015, vol. 49, issue 2, 204-226

Abstract: This paper examines the relationship between Foreign Direct Investment (FDI) and the real exchange rate for low-income countries of Sub-Saharan Africa, using a panel data approach and Two-Stage Least Squares (2SLS) method. The results show that while the depreciation of the real exchange rate draws more FDI to Sub-Saharan African countries, the real exchange rate volatility causes greater instability in FDI inflows to these countries. The results are robust across different measures and model specifications. In addition, we conclude that the use of the pegged exchange rate as an incentive to attract FDI inflow, in the presence of increasing real exchange rate instability, creates greater price instability, as a result, FDI inflows are largely influenced by the real exchange rate.

Keywords: FDI; Real exchange rate; Prices; Panel data; Two-Stage Least Squares method (search for similar items in EconPapers)
JEL-codes: C33 F21 F31 O55 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.49:year:2015:issue2:pp:204-226

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