An Analysis of the Impacts of Inflation, Trade Openness, and Exchange Rate on Foreign Direct Investment in Bangladesh and some Selected Emerging Countries

Dr. Sayera Younus and Ehsanur Prince

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the impacts of inflation, trade openness and exchange rate on foreign direct investment (FDI) in Bangladesh, Colombia, India, Indonesia, Mexico, Philippines, and Turkey.Johansen-Juselius (1988) procedure is applied to test the cointegration relationship among the variables followed by the Vector Error Correction model. The empirical results trace a long-run equilibrium relationship in the variables. Among the three independent variables, inflation and exchange rate are found as important factors in explaining the changes in FDI inflows in both short-run and long-run.Therefore, the challenge before the central banks of these emerging countries including Bangladesh is to maintain a stable and realistic exchange rate that will boost domestic production, increase FDI and maintain internal and external balance. In order to protect external competitiveness, it is necessary to intervene in the domestic foreign exchange market by the concerned central banks. As trade openness is a means of themarket- related economic determinant regarding attracting FDI inflow in thehost country, so trade policy vis-a-vis monetary and fiscal policies should be made proactive considering the global perspectives.

Keywords: Foreign Direct Investment; Inflation; Exchange Rate; Trade Openness. (search for similar items in EconPapers)
JEL-codes: E0 E3 F1 F2 F3 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in BBTA Journal: Thoughts on Banking and Finance 1.6(2017): pp. 09-45

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/122190/1/MPRA_paper_122190.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:122190

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().