Exchange Rate Volatility and Foreign Direct Investment : A Panel Data Analysis

Abstract: This thesis examines both the long run and the short run impact of Exchange Rate Volatility on Foreign Direct Investment using an unbalanced panel data from three Sub-Saharan African countries of Kenya, Uganda and Tanzania. This is accomplished by generating Exchange Rate Volatility figures by the GARCH(1,1) methodology. The control variables included in this study include GDP, GDP growth, Economic Openness and Exchange rate. In order to capture the impact of economic openness on exchange rate volatility and thus foreign direct investment, different econometric specifications are adopted. The unbalanced panel data used in the analysis ranges for different time period for the specific countries considered in the panel.