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Exchange rates and foreign direct investment: evidence for sub-saharan Africa

Author

Listed:
  • Adil Suliman
  • Khaled Elmawazini
  • Mohammed Zakaullah Shariff

    () (Gulf University for Science and Technology, Kuwait)

Abstract

This paper examines the relationship between Foreign Direct Investment (FDI) and the real exchange rate for low-income countries of Sub-Saharan Africa, using a panel data approach and Two-Stage Least Squares (2SLS) method. The results show that while the depreciation of the real exchange rate draws more FDI to Sub-Saharan African countries, the real exchange rate volatility causes greater instability in FDI inflows to these countries. The results are robust across different measures and model specifications. In addition, we conclude that the use of the pegged exchange rate as an incentive to attract FDI inflow, in the presence of increasing real exchange rate instability, creates greater price instability, as a result, FDI inflows are largely influenced by the real exchange rate.

Suggested Citation

  • Adil Suliman & Khaled Elmawazini & Mohammed Zakaullah Shariff, 2015. "Exchange rates and foreign direct investment: evidence for sub-saharan Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 49(2), pages 204-226, April-Jun.
  • Handle: RePEc:jda:journl:vol.49:year:2015:issue2:pp:204-226
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    References listed on IDEAS

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    More about this item

    Keywords

    FDI; Real exchange rate; Prices; Panel data; Two-Stage Least Squares method;

    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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