IDEAS home Printed from https://ideas.repec.org/a/taf/intecj/v34y2020i1p85-99.html
   My bibliography  Save this article

Exchange Rate Regimes and Foreign Direct Investment Flow in West African Monetary Zone (WAMZ)

Author

Listed:
  • Perekunah B. Eregha

Abstract

This study examines the effect of exchange rate regimes on foreign direct investment (FDI) flow for West African Monetary Zone (WAMZ). The Arellano Panel Correction for Serial Correlation and Heteroskedaticity option of the Within Estimator for fixed-effect panel data model as well as the Dynamic Panel Data Instrumental Variable Approach by Anderson and Hsiao [(1981). Estimation of dynamic models with error components. Journal of the American Statistical Association, 76, 598–606] for the countries selected based on the data availability for the period 1980–2016 were used. The fixed exchange rate regime was found to hamper FDI flow in the zone, while intermediate policy had a significantly positive effect in facilitating FDI flow during periods of declining foreign reserves and narrowing current account balance in WAMZ. This implies that the transmission of the effect of exchange rate regimes on FDI inflows depends on the positions of the foreign reserves and current account balance in the zone. The study therefore recommends the need for monetary authorities to be cautious in managing their exchange rates especially in periods of depleting foreign reserves and narrowing current account so as not to deter the much needed FDI inflow.

Suggested Citation

  • Perekunah B. Eregha, 2020. "Exchange Rate Regimes and Foreign Direct Investment Flow in West African Monetary Zone (WAMZ)," International Economic Journal, Taylor & Francis Journals, vol. 34(1), pages 85-99, January.
    • Handle: RePEc:taf:intecj:v:34:y:2020:i:1:p:85-99
    DOI: 10.1080/10168737.2019.1669689
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10168737.2019.1669689
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10168737.2019.1669689?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kozo Kiyota & Shujiro Urata, 2004. "Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 27(10), pages 1501-1536, November.
    2. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
    3. Cushman, David O. & De Vita, Glauco, 2017. "Exchange rate regimes and FDI in developing countries: A propensity score matching approach," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 143-163.
    4. Joshua Aizenman, 1992. "Exchange Rate Flexibility, Volatility, and the Patterns of Domestic and Foreign Direct Investment," NBER Working Papers 3953, National Bureau of Economic Research, Inc.
    5. Sung, Hongmo & Lapan, Harvey E, 2000. "Strategic Foreign Direct Investment and Exchange-Rate Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 411-423, May.
    6. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    7. Matthias Busse & Carsten Hefeker & Signe Nelgen, 2013. "Foreign Direct Investment and Exchange Rate Regimes," Economics Bulletin, AccessEcon, vol. 33(1), pages 843-858.
    8. Katheryn Russ, 2012. "Exchange rate volatility and first-time entry by multinational firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(2), pages 269-295, June.
    9. Goldberg, Linda S & Kolstad, Charles D, 1995. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 855-873, November.
    10. Joshua Aizenman, 1992. "Exchange Rate Flexibility, Volatility, and Domestic and Foreign Direct Investment," IMF Staff Papers, Palgrave Macmillan, vol. 39(4), pages 890-922, December.
    11. Fedderke, J.W. & Romm, A.T., 2006. "Growth impact and determinants of foreign direct investment into South Africa, 1956-2003," Economic Modelling, Elsevier, vol. 23(5), pages 738-760, September.
    12. Andrew Abbott & David O. Cushman & Glauco De Vita, 2012. "Exchange Rate Regimes and Foreign Direct Investment Flows to Developing Countries," Review of International Economics, Wiley Blackwell, vol. 20(1), pages 95-107, February.
    13. Christian Schmidt & Udo Broll, 2009. "Real exchange-rate uncertainty and US foreign direct investment: an empirical analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(3), pages 513-530, October.
    14. John H. Dunning, 1977. "Trade, Location of Economic Activity and the MNE: A Search for an Eclectic Approach," Palgrave Macmillan Books, in: Bertil Ohlin & Per-Ove Hesselborn & Per Magnus Wijkman (ed.), The International Allocation of Economic Activity, chapter 12, pages 395-418, Palgrave Macmillan.
    15. Fernandez-Arias, Eduardo & Montiel, Peter J, 1996. "The Surge in Capital Inflows to Developing Countries: An Analytical Overview," The World Bank Economic Review, World Bank, vol. 10(1), pages 51-77, January.
    16. Jensen, Nathan M., 2003. "Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment," International Organization, Cambridge University Press, vol. 57(3), pages 587-616, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Deepak Kumar & Shubham Kumar & Keya Sengupta & Tapas K. Giri, 2022. "Examining the Role of Policy and Cultural Determinants on Sectoral Export Competitiveness: Evidences from India," Global Business Review, International Management Institute, vol. 23(3), pages 694-709, June.
    2. Oliver E. Ogbonna & Jonathan E. Ogbuabor & Charles O. Manasseh & Davidmac O. Ekeocha, 2022. "Global uncertainty, economic governance institutions and foreign direct investment inflow in Africa," Economic Change and Restructuring, Springer, vol. 55(4), pages 2111-2136, November.
    3. Siaw Frimpong, 2022. "On the Macroeconomic Conditions of West African Economies to External Uncertainty Shocks," Risks, MDPI, vol. 10(7), pages 1-27, July.
    4. Abdalwali Lutfi & Maryam Ashraf & Waqas Ahmad Watto & Mahmaod Alrawad, 2022. "Do Uncertainty and Financial Development Influence the FDI Inflow of a Developing Nation? A Time Series ARDL Approach," Sustainability, MDPI, vol. 14(19), pages 1-11, October.
    5. Olatunji Abdul Shobande, 2019. "Effect of Economic Integration on Agricultural Export Performance in Selected West African Countries," Economies, MDPI, vol. 7(3), pages 1-14, August.
    6. S. Veeramani & Abha Shukla & Mariam Jamaleh, 2020. "Financial theories of foreign direct investment: a review of literature," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(2), pages 185-217, June.
    7. Magdalene Williams & Ahmad Abu Alrub & Mehmet Aga, 2022. "Ecological Footprint, Economic Uncertainty and Foreign Direct Investment in South Africa: Evidence From Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Approach," SAGE Open, , vol. 12(2), pages 21582440221, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Perekunah B. Eregha, 2019. "Exchange Rate, Uncertainty and Foreign Direct Investment Inflow in West African Monetary Zone," Global Business Review, International Management Institute, vol. 20(1), pages 1-12, February.
    2. Harms, Philipp & Knaze, Jakub, 2021. "Bilateral de-jure exchange rate regimes and foreign direct investment: A gravity analysis," Journal of International Money and Finance, Elsevier, vol. 117(C).
    3. Matthias Busse & Carsten Hefeker & Signe Nelgen, 2013. "Foreign Direct Investment and Exchange Rate Regimes," Economics Bulletin, AccessEcon, vol. 33(1), pages 843-858.
    4. Cushman, David O. & De Vita, Glauco, 2017. "Exchange rate regimes and FDI in developing countries: A propensity score matching approach," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 143-163.
    5. Warren Moraghen & Boopen Seetanah & Noor Sookia, 2021. "Impact of exchange rate and exchange rate volatility on foreign direct investment inflow for Mauritius: A dynamic time series approach," African Development Review, African Development Bank, vol. 33(4), pages 581-591, December.
    6. Shauna Phillips & Fredoun Z. Ahmadi-Esfahani, 2008. "Exchange rates and foreign direct investment: theoretical models and empirical evidence ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(4), pages 505-525, December.
    7. S. Veeramani & Abha Shukla & Mariam Jamaleh, 2020. "Financial theories of foreign direct investment: a review of literature," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(2), pages 185-217, June.
    8. Balaban, Suzana & Živkov, Dejan & Milenković, Ivan, 2019. "Impact of an unexplained component of real exchange rate volatility on FDI: Evidence from transition countries," Economic Systems, Elsevier, vol. 43(3).
    9. Deseatnicov, Ivan & Klochko, Olga, 2023. "Currency risk and the dynamics of German investors entry and exit in Russia," Emerging Markets Review, Elsevier, vol. 55(C).
    10. Zerin Jannat, 2020. "The Impact of Exchange Rate Volatility on Foreign Direct Investment Inflows: Evidence from South Asia," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 10(3), pages 101-116.
    11. Benjamin N. Dennis & Christopher A. Laincz & Lei Zhu, 2008. "Which Exchange Rates Matter for FDI? Evidence for Japan," Southern Economic Journal, John Wiley & Sons, vol. 75(1), pages 50-68, July.
    12. Hermann Sintim-Aboagye & Chandana Chakraborty & Serapio Byekwaso, 2017. "Foreign Capital Flows, Uncertainties of Exchange Rates and Central Bank Independence: Implications for Emerging Economies," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 45(4), pages 485-496, December.
    13. Yu Ma & Xinqian Du, 2022. "Exchange rate factors, income levels, and investment abroad: An empirical study based on a sample of emerging economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1711-1730, April.
    14. Narayan, Paresh Kumar & Rath, Badri Narayan & Syarifuddin, Ferry, 2022. "Understanding the role of trade agreements in Indonesia’s FDI," Journal of Asian Economics, Elsevier, vol. 82(C).
    15. Michal Brzozowski, 2006. "Exchange Rate Variability and Foreign Direct Investment: Consequences of EMU Enlargement," Eastern European Economics, Taylor & Francis Journals, vol. 44(1), pages 5-24, February.
    16. John C. Anyanwu, 2012. "Why Does Foreign Direct Investment Go Where It Goes?: New Evidence From African Countries," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 425-462, November.
    17. Qi, Jianhong & Liu, Hui & Zhang, Zhaoyong, 2021. "Exchange rate uncertainty and the timing of Chinese Outward Direct Investment," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1193-1204.
    18. Phillips, Shauna & Ahmadi-Esfahani, Fredoun Z., 2008. "Exchange Rates and Foreign Direct Investment: Theoretical Models and Empirical Evidence," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 1-21.
    19. Sakli Hniya & Ahlem Boubker & Fatma Mrad & Sawssen Nafti, 2021. "The Impact of Real Exchange Rate Volatility on Foreign Direct Investment Inflows in Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 11(5), pages 52-67.
    20. Katheryn Russ, 2012. "Exchange rate volatility and first-time entry by multinational firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(2), pages 269-295, June.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:34:y:2020:i:1:p:85-99. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RIEJ20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.