EXCHANGE RATE INFLUENCE ON FOREIGN DIRECT INVESTMENT: EMPIRICAL EVIDENCE FROM CIS COUNTRIES

Аннотация

While there have been huge exploration on the effecting factors of FDI for created and non-industrial nations, almost no has been completed on this issue for developing nations, particularly CIS – "Commonwealth of Independent States nations". The current research analyzes the elements of Foreign Direct Investment (FDI) in the Commonwealth of the Independent States somewhere in the range between 1995 and 2018. Distinguishably, this research is dedicated to describing the relationship between FDI and exchange. Earlier experimental and empirical commitments are examined cautiously to discover expected determinants which are exchange rate, GDP, GDP per capita, inflation rate, and trade openness. Regression analysis and Granger causality experiments are utilized to examine the bond between variables. Test results show there is no significant influence of exchange rate on the FDI of CIS countries. KEYWORDS CIS, FDI, exchange rate. INTRODUCTION economic development. Foreign investment leads to economic growth for both advanced and emerging The importance of Foreign direct investment countries. However, the advantages of foreign investment for growing countries are greater than for In recent decades, foreign direct investment (FDI) has developed countries. To build a strong economic turned out to be one of the driving forces of Volume 02 Issue 04-2022 19 International Journal Of Management And Economics Fundamental (ISSN – 2771-2257) VOLUME 02 ISSUE 04 Pages: 19-28 SJIF IMPACT FACTOR (2022: 6.006) OCLC – 1121105677 METADATA IF – 5.587 Publisher: Oscar Publishing Services Servi foundation, governments do not have enough opportunities it will have to use the investment (Froot capacity to support the economy. To support and Stein, 1991; Barrel and Pain, 1996; Harris and economic development, foreign investment has a Ravensraft, 1991; Swenson, 1994)” 1. significant influence on the economic growth of third- As noted above, the conversion rate level is an world countries by bridging the gap between important strong factor for multinational firms. domestic savings and investment. That is why every Accordingly, this review depends on the level of the country is striving for growth of direct. conversion standard and the impact of foreign direct Studies show that foreign direct investment increases investment inflows into the CIS countries. This study competition in the market and expands access to examined the presence of a connection between the world markets for exported goods. Indeed, a real exchange rate in the CIS countries and the inflow significant increase in global investment began in the of foreign investment. Section II contains mid-1980s. While foreign direct investment totaled $ experimental investigations determined by the 60 million in 1985, the trend was $ 1.3 trillion in 2018, replacement scale and FDI. Section III describes the with some exceptions (UNCTAD, 2018). factors and explores the experimental findings of the model, and Section IV makes important definitions. Various factors affect FDI. However, important factors can perform the functions in selecting fixed-oriented LITERATURE REVIEW foreign investment, organized, local guidelines for Determining factors of Foreign direct investment trade, exchange rates, transaction costs, monetary management, labor costs, economic risks, accessibility Peter Nunnenkamp (2002) approaches defining to the market, and factor-funds of the adopted determinants differently. He classifies variables as countries. Foreign investment is both the exchange nontraditional and traditional determines. As rate and volatility of it among vital factors. While an traditional factors author includes the below- investor is taking any decision to put money on some mentioned variables: population of host countries; projects the depreciation and appreciation of the host “GDP per capita in host countries; GDP growth of host country's exchange rate and the frequent exchange countries; administrative bottlenecks; entry rate fluctuations affect. When depreciation of restrictions; risk factors”. As far as research is currency occurs in the host country that lowers the concerned non-traditional factors are mostly directed cost of production, known as gross wages. The to efficiency creation and they are as follow: devaluation of the national currency undermines the overall cost of capital and the associated foreign “Complementary factors of production, i.e., local investment management. “Foreign investors may inputs required for an internationally competitive have capital associated with their current wealth after production in developing host countries; 2 depreciation. Usually, appreciation of the local currency leads to an expansion of the real activity of global companies, known as the nation’s 1 Kenneth A. Froot and Jeremy C. Stein, “Exchange Rates and Foreign Direct Investment: An Imperfect commonwealth channel. The more a firm plans to Capital Markets Approach” The Quarterly Journal of in