FDI to Africa: The role of price stability and currency instability

Carmen Reinhart and Kenneth Rogoff

MPRA Paper from University Library of Munich, Germany

Abstract: Africa lags behind other regions in attracting foreign direct investment (FDI). In some circumstances, there are obvious explanations for the absence of FDI, such as a high incidence of war. In this paper, we examine the role that monetary and exchange rate policy may have played in explaining this outcome. Specifically, we document the incidence of inflationary episodes and currency crashes in order to compare countries within the region as well as to make comparisons with other regions. Furthermore, since monetary policy can range from very transparent to very opaque, we assess Africa’s track record with dual and parallel markets. We use the parallel market premia as an indicator of the degree of distortions and extent of transparency. Our findings, suggest that this is a promising line of inquiry because Africa does stand apart from other regions in this measure of transparency. We also discuss some of the fiscal underpinnings of Africa’s bouts with high inflation.

Keywords: parallel; market; exchange; rates; inflation; capital; controls; volatility; foreign; direct; investment (search for similar items in EconPapers)
JEL-codes: F32 F40 F51 (search for similar items in EconPapers)
Date: 2002-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Published in B. Plesovic and N. Stern, Annual World Bank Conference on Development Economics 2002: The New Reform Agenda. Washington DC: The World Bank/Oxford University Press, (2002): pp. 247-282

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https://mpra.ub.uni-muenchen.de/45134/1/MPRA_paper_13872.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/45132/1/MPRA_paper_13872.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/45133/1/MPRA_paper_13872.pdf revised version (application/pdf)

Related works:
Working Paper: FDI to Africa: The Role of Price Stability and Currency Instability (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:13872

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