Abstract
The paper seeks to determine the effect of exchange rate volatility on foreign direct investment in Ghana from 1986 to 2017. The study adopted the Generalized Autoregressive Conditional Heteroskedasticity model to fit the data set from 1986-2017. The results indicate that, previous quarter information can influence current quarter volatility in Foreign Direct Investment. Real exchange rate, gross domestic product and treasure bill rate considered as external factors, are all found to be significant. This shows that, volatility from these factors can spillover to volatility in foreign direct investment. To ensure stable inflow of foreign direct investment, we recommend that policies should gear towards stability in the forex market and interest rate among others.
Highlights
The effect of Foreign Exchange Volatility (FEV) on Foreign Direct Investment (FDI) has been well documented in the extant literature
The study presents the results from the estimated empirical Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model
The paper sought to determine if volatility in exchange rate and other macroeconomic factors affect volatility in Foreign Direct Investment (FDI)
Summary
The effect of Foreign Exchange Volatility (FEV) on Foreign Direct Investment (FDI) has been well documented in the extant literature. To add to the above, Okwuchukwu, (2015), found a negative relationship between the two variables both in the short and long run when he investigated the impact of exchange rate volatility and stock market performance on the inflow of FDI in Nigerian economy by employing a time series data from 1980-2013. He recommended the adherence to sound exchange rate management, which has the tendency of. The final section provides the conclusion and some policy recommendations
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