THE IMPACT OF REAL EXCHANGE RATE VOLATILITY ON FOREIGN DIRECT INVESTMENT INFLOWS IN TUNISIA

Sakli Hniya,Ahlem Boubker,Sawssen Nafti,Fatma Mrad

doi:10.32479/ijefi.11882

Abstract

This article aims to determine the impact of the Real Effective Exchange Rate (REER) and its volatility on Tunisian Foreign Direct Investment (FDI) Inflows for the period from 1980 to 2018. By applying the Auto Regressive Distributed Lag (ARDL) model, we noticed that an increase in exchange rate volatility tends to lower FDI inflows over a long-term horizon. We have also shown that an increase in REER, equivalent to a real appreciation (quotation at certain), will decrease FDI. While in the short term, the relationship between REER and FDI is positive, while volatility retains its negative long term effect.Keywords: Foreign Direct Investment, Real Effective Exchange Rate Volatility, ARDL Model, TunisiaJEL Classifications: C130, G150, F310DOI: https://doi.org/10.32479/ijefi.11882

Highlights

The attraction of Foreign Direct Investment (FDI) is an objective sought by several economies since they can achieve the optimum of expected objectives in inclusive growth, job creation, regional development and technology transfer
We find that the Real Effective Exchange Rate (REER), population and inflation exert a positive influence on FDI
FDI is an important engine of economic growth and a crucial source of finance for developing countries

Summary

Introduction

The attraction of FDI is an objective sought by several economies since they can achieve the optimum of expected objectives in inclusive growth, job creation, regional development and technology transfer. It must play the role of the substitute for external debt in financing. Given the important roles of FDI in improving economic growth, the search for the factors that influence FDI inflows has been the subject of several theoretical and empirical levels. One of these factors that have recently been debated and topical for economists is the REER and its volatility

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