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Real Exchange Rate and Foreign Direct Investment in Sub-Saharan Africa: Some Empirical Results

Author

Listed:
  • Oluremi Ogun

    () (Senior lecturer, Department of Economics, University of Ibadan. Ibadan, Nigeria.)

  • Festus O. Egwaikhide

    () (Professor, Department of Economics, University of Ibadan. Ibadan, Nigeria.)

  • Eric K. Ogunleye

    () (Special assistant to the president/senior economist (International Trade and Finance), Office of the Chief Economic Adviser to the President, The Presidency, Federal Secretariat. Abuja, Nigeria.)

Abstract

Despite the well acknowledged importance of foreign direct investment (FDI) and efforts of sub-Sahara African (SSA) countries at attracting it, the region remains the least destination for FDI globally. Of course, several studies have endeavored to examine the determinants of FDI in this region. This study contributes to the literature by examining a possible determinant of fdi that has received less attention in the literature: real exchange rate (RER) movements. This paper examines this relationship with a view to determining the extent to which real exchange rate movements stifle FDI inflows in selected SSA countries, employing the Granger causality and simultaneous estimation techniques. The use of simultaneous equation is informed by the theoretical and empirical inconclusiveness on the relationship between movements in RER and FDI. The Granger Causality test further provides insight on the causal direction of the variables. Whereas the causality tests suggest statistical dependence between RER movements and FDI for a few of the countries, the regression analyses show a statistically significant relationship between these variables. While the inclusion of pre-reform period in the study may have contributed to these results, the general picture emerging is that FDI flows are sensitive to REER movements in SSA.

Suggested Citation

  • Oluremi Ogun & Festus O. Egwaikhide & Eric K. Ogunleye, 2012. "Real Exchange Rate and Foreign Direct Investment in Sub-Saharan Africa: Some Empirical Results," Economía Mexicana NUEVA ÉPOCA, , vol. 0(1), pages 175-202, January-J.
  • Handle: RePEc:emc:ecomex:v:21:y:2012:i:1:p:175-202
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    Keywords

    FDI; real exchange rate; Granger causality; system estimation; sub-Saharan Africa.;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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