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FDI, Exchange Rate Volatility and Financial Development: Regional Differences In Emerging Economies

Author

Listed:
  • Maroula Khraiche

    () (Colorado College)

  • Jeffrey Gaudette

    () (Colorado College)

Abstract

This paper evaluates the importance of an economy's financial development in determining the effect of exchange rate volatility on foreign direct investment (FDI) for a panel of 39 emerging economies over 35 years. Results show that the impact of exchange rate volatility on FDI in economies with lower financial development tends to be significant and positive, but the effect is not significant for countries with greater financial development. One explanation for such results is that firms may require less FDI to hedge against exchange rate uncertainty when financial markets are deeper.

Suggested Citation

  • Maroula Khraiche & Jeffrey Gaudette, 2013. "FDI, Exchange Rate Volatility and Financial Development: Regional Differences In Emerging Economies," Economics Bulletin, AccessEcon, vol. 33(4), pages 3143-3156.
  • Handle: RePEc:ebl:ecbull:eb-13-00294
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Real Exchange Rate Volatility; FDI; Financial Development;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F0 - International Economics - - General

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