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Real Exchange Rate Volatility and Foreign Direct Investment Inflows: The Ghanaian Experience

Author

Listed:
  • Osei-Fosu
  • Baba Insah Anthony
  • Ofori-Boateng Kenneth

Abstract

Foreign Direct Investment (FDI) has played a critical role in the economic growth and development of many countries. This critical role has motivated studies to investigate the sources or causes of FDI inflows. This study sought to investigate the influence of real exchange rate volatility on FDI inflows in the Ghanaian economy. The study used a simultaneous equation framework considering the endogeneity of some explanatory variables. The Two-stage Least Squares estimation technique was employed for the study. For Robustness, single equation models using Ordinary Least Squares were also estimated for a comparison. The main contribution of this study is empirical; the use of a simultaneous system to investigate the determinants of foreign direct investment inflows and real exchange rate volatility. The findings revealed that the responsiveness of FDI to real exchange rate volatility is inelastic, negative and not statistically significant. However, controlling for other variables, the coefficient of general price level is negative, elastic and statistically significant at the 5% significance level. It is thus recommended that other factors other than exchange rate volatility should be considered to stimulate FDI inflows in Ghana.

Suggested Citation

  • Osei-Fosu & Baba Insah Anthony & Ofori-Boateng Kenneth, 2015. "Real Exchange Rate Volatility and Foreign Direct Investment Inflows: The Ghanaian Experience," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 4(6), pages 336-344.
    • Handle: RePEc:rss:jnljef:v4i6p1
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    2. Sakli Hniya & Ahlem Boubker & Fatma Mrad & Sawssen Nafti, 2021. "The Impact of Real Exchange Rate Volatility on Foreign Direct Investment Inflows in Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 11(5), pages 52-67.

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