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Foreign Direct Investment, Aggregate Demand Conditions and Exchange Rate Nexus: A Panel Data Analysis of BRICS Economies

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  • Muhammad Ali Nasir

    (Faculty of Business and Law, Leeds Beckett University, 520 Rose Bowl, Leeds, England LS1 3HS, United Kingdom of Great Britain and Northern Ireland)

  • Ferhan Ahmad

    (Department for International Development, Glasgow, United Kingdom of Great Britain and Northern Ireland)

  • Mushtaq Ahmad

    (COMSATS Institute of Information Technology, Wah Campus, Wah Cantt, Pakistan)

Abstract

In this study, we attempt to provide underlying theoretical and empirical explanations for exchange rate appreciation due to foreign capital influx and aggregate demand conditions in the BRICS economies. The empirical analysis is based on a panel dataset of BRICS countries over the time period 1992–2013 to substantiate our theoretical findings. For panel co-integration, Pedroni and Johansen-Fisher panel co-integration tests are conducted to compare co-integration among panel countries. We also analyze the results from Dumitrescu-Hurlin panel causality test among variables and use Granger Causality to test for the causal patterns in each of the individual countries. Our findings showed that the exchange rate volatility is directly affected by the flows of FDI, GDP per capita, Capital formulation and House hold consumption. The results have profound implications in terms of exchange rate stability in the BRICS countries and associated risks.

Suggested Citation

  • Muhammad Ali Nasir & Ferhan Ahmad & Mushtaq Ahmad, 2017. "Foreign Direct Investment, Aggregate Demand Conditions and Exchange Rate Nexus: A Panel Data Analysis of BRICS Economies," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(1), pages 1-25, March.
    • Handle: RePEc:wsi:gejxxx:v:17:y:2017:i:01:n:gej-2016-0012
    DOI: 10.1515/GEJ-2016-0012
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    Cited by:

    1. Albulescu, Claudiu Tiberiu & Ionescu, Adrian Marius, 2018. "The long-run impact of monetary policy uncertainty and banking stability on inward FDI in EU countries," Research in International Business and Finance, Elsevier, vol. 45(C), pages 72-81.
    2. Alexandre Ripamonti, 2019. "Capital Structure Adjustments and Asymmetric Information," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(12), pages 1-1, December.
    3. Mohammad I. Elian & Nabeel Sawalha & Ahmed Bani-Mustafa, 2020. "Revisiting the FDI–Growth Nexus: ARDL Bound Test for BRICS Standalone Economies," Modern Applied Science, Canadian Center of Science and Education, vol. 14(6), pages 1-1, June.
    4. Mesagan, Ekundayo Peter & Alimi, Olorunfemi Yasiru & Vo, Xuan Vinh, 2022. "The asymmetric effects of exchange rate on trade balance and output growth," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    5. Chang, Ming-Jen & Matsuki, Takashi, 2022. "Exchange rate forecasting with real-time data: Evidence from Western offshoots," Research in International Business and Finance, Elsevier, vol. 59(C).
    6. Ripamonti, Alexandre & Silva, Diego & Moreira Neto, Eurico, 2018. "Asset Pricing and Asymmetric Information," MPRA Paper 87403, University Library of Munich, Germany.
    7. Ripamonti, Alexandre, 2019. "Capital Structure Adjustments and Asymmetric Information," MPRA Paper 96936, University Library of Munich, Germany.

    More about this item

    Keywords

    FDI; official exchange rate; panel data; co-integration; Pedroni;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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