Publication: Exchange Rate Volatility and FDI Inflows: Evidence from Cross-Country Panel Data
Date
2018-06
ISSN
Published
2018-06
Author(s)
Abstract
Using a panel of 80 developing and
developed countries for the period 1990-2015, this
studyanalyses the relationship between exchange rate
volatility and foreign direct investment (FDI)inflows. The
results reveal a negative relationship between de facto
exchange rate volatility andFDI. Reducing exchange rate
volatility by 10 percent over one-year can boost FDI
inflows—ceterisparibus—by an estimated 0.48 percentage
points of GDP while the same reduction over the pastfive
years can boost FDI inflows by 0.27 percentage points over
the long-run. The results areapplied to the case of South
Africa, which has been experiencing high volatility of the
rand inrecent years. Reducing the rand's volatility to
that of developing country peers, South Africa could boost
FDI inflows by a potential of 0.25 percentage points of GDP.
Citation
“Hanusch, Marek; Nguyen, Ha; Algu, Yashvir. 2018. Exchange Rate Volatility and FDI Inflows; Exchange Rate Volatility and FDI Inflows : Evidence from Cross-Country Panel Data. MTI Global Practice Discussion Paper;No. 2. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/29911 License: CC BY 3.0 IGO.”