The Impact of Relative Exchange Rate Volatility and Other Multidimensional Determinants on FDI in Egypt ()
ABSTRACT
The current trends of financial globalization have provided worldwide
investors a great opportunity to invest and increase the financial flows
between developed and developing countries through foreign direct investment.
Foreign direct investment (FDI) has been viewed by developing countries as a
crucial source of economic development and rapid economic growth by
transferring advanced technology and management expertise from developed
countries to developing countries. After the collapse of Bretton Woods
Agreement, the majority of the countries adopted flexible/floating exchange
rate systems. Thereafter, uncertainty arose in several countries as a result of
the large fluctuations in currency prices. Consequently, exchange rate
volatility (ERV) has gained attention from researchers, due to its perceived
importance and many studies have investigated the impact of exchange
rate volatility on FDI; however, there have been long debates and controversies
regarding the impact of ERV on FDI. Researchers have argued that to reach
better comprehensive results, some determinants that impact FDI have been
studied along with ERV. This study employs the basic FDI gravity model as well
as the augmented FDI gravity model using the data collected for forty-two
source countries over the period 2005-2019. While using a Generalized Method of
Moments (GMM) estimation approach, this research intends to provide better
understanding of the impact of relative ERV on inward FDI to Egypt as well as
investigating the impact of other relative dimensions on inward FDI to Egypt
from these source countries. Results have revealed that relative exchange rate
volatility has a negative impact on inward FDI to Egypt. It has also been
conducted that market size of home countries and host country exert a
significant positive impact on inward FDI to Egypt. Geographic distance,
bilateral trade, relative cost of borrowing, relative labor productivity, and
relative corruption are found to be statistically significant for inward FDI to
Egypt.
Share and Cite:
Nadine, A. , Ashraf, S. and Nagia, R. (2021) The Impact of Relative Exchange Rate Volatility and Other Multidimensional Determinants on FDI in Egypt.
American Journal of Industrial and Business Management,
11, 1163-1197. doi:
10.4236/ajibm.2021.1112071.