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The Impact of Misalignment on FDI in the Developing Countries

Author

Listed:
  • Abdessalem GOUIDER

    (Department of Economics, College of Economics and Administration Sciences, Al-Imam Muhammad Ibn Saud Islamic University (IMSU),PO Box 5701 Riyadh, Saudi Arabia.)

  • Ridha NOUIRA

    (UREP, University of Sfax, Sfax 3000, Tunisia.)

Abstract

This paper contributes to a current and intense debate among economists concerning the impact that real exchange rate misalignment can have on FDI. To identify the degree of misalignment, a model of Edwards in Panel will be estimated for a sample of 52 developing countries over the period 1980-2010. Once the misalignment values are determined, they will be included in the FDI model. The results prove that the misalignment is a main determinant of the FDI in the developing countries. Indeed, the overvaluation has a negative and significant effect on the FDI while undervaluation does not have a significant effect on it. Finally, a persistent overvaluation in developing countries can slow down the flow of FDI to these countries, whereas the persistent undervaluation stimulates these flows.

Suggested Citation

  • Abdessalem GOUIDER & Ridha NOUIRA, 2014. "The Impact of Misalignment on FDI in the Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 784-800.
    • Handle: RePEc:eco:journ1:2014-04-09
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    More about this item

    Keywords

    Foreign direct investment; Overvaluation; Undervaluation;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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