FDI to Africa: The role of price stability and currency instability
AbstractAfrica 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13872.
Date of creation: Aug 2002
Date of revision:
parallel market exchange rates inflation capital controls volatility foreign direct investment;
Other versions of this item:
- Carmen Reinhart & Kenneth Rogoff, 2003. "FDI to Africa: The Role of Price Stability and Currency Instability," IMF Working Papers 03/10, International Monetary Fund.
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F51 - International Economics - - International Relations and International Political Economy - - - International Conflicts; Negotiations; Sanctions
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