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Exchange rate uncertainty and private investment in BRICS economies

Author

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  • Martin Ruzima

    (Annamalai University)

  • Micheal Kofi Boachie

    (Annamalai University)

Abstract

Macroeconomic uncertainty is a major challenge facing policymakers. Exchange rate is usually associated with high level of volatility in developing economies. This has potential effect on other economic variables such as investment. This paper empirically examines the impact of exchange rate uncertainty on private investment in the BRICS bloc. Using cross-country time series data from World Development Indicators, for 1997–2015, we built an ARCH-based measure of exchange rate volatility to proxy uncertainty. The results show that uncertainty resulting from exchange rate volatility has a negative effect on private investment in both random and fixed effects as well as GMM estimations. Therefore, policy may focus on stabilizing domestic currencies in BRICS countries.

Suggested Citation

  • Martin Ruzima & Micheal Kofi Boachie, 2018. "Exchange rate uncertainty and private investment in BRICS economies," Asia-Pacific Journal of Regional Science, Springer, vol. 2(1), pages 65-77, April.
    • Handle: RePEc:spr:apjors:v:2:y:2018:i:1:d:10.1007_s41685-017-0062-0
    DOI: 10.1007/s41685-017-0062-0
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    More about this item

    Keywords

    Private investment; Exchange rate; Uncertainty; BRICS;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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