The Effects Of Exchange Rate Level And Volatility On Fdi Inflows: A Theoretical And Empirical Literature Review

Résumé: This paper reviews the theoretical and empirical literature on the effects of exchange rate level and volatility on FDI inflows. There are two hypotheses that explain the relationship between exchange rate level and FDI: the wealth position hypothesis and the relative labor cost hypothesis. There is another argument known as the expectation of future profitability argument. Moreover, changes in exchange rate level can have an impact on various types of FDI. The existing theoretical literature about exchange rate volatility-FDI nexus is divided into two strands: the production flexibility arguments and the risk aversion arguments. Both approaches provide contradictory results. Previous empirical studies' findings varied in the long and short term. Some studies found a positive effect, others found a negative effect, and still others found no effect of exchange rate level and volatility on FDI inflows. The research's findings make it clear that there is controversy in the theoretical and empirical literature.

Publié dans la revue: مجلة بحوث الإدارة والاقتصاد