Exchange Rate Variability and Foreign Direct Investment: Evidence From Panel Models
Saudi Digital Library
During the past few decades, exchange rate volatility has continued to increase in prominence. Notably, small, open economies, have sparked empirical examination regarding exchange rate uncertainty eﬀects on macroeconomic variables, including foreign direct investment ﬂows. The following study elucidates the exchange rate risk’s relationship to and foreign direct investment ﬂows and purporting increased exchange rate risks and uncertainty may reduce foreign direct investment ﬂows. The analyses were gleaned data from 51 countries from 1998 to 2017. A GARCH (1,1) model ﬁrst estimated alternatively measured exchange rate uncertainty. The estimated exchange rate volatility with two alternative methods was then included in panel data models using ﬁxed and random effects estimation techniques, as well as an Arellano Bond linear dynamic panel data model.