Investigating the effective factors on attracting foreign investment with emphasis on exchange rate volatilities (the approach of ARDL)

Document Type : Original Article

Authors

1 Ph.D. Candidate in Financial Engineering, Karaj Branch, Islamic Azad University, Karaj, Iran.

2 Assistant Professor, Department of Industrial Engineering, Karaj Branch, Islamic Azad University, Karaj, Iran.

3 Assistant Professor, Department of Accounting, Karaj Branch, Islamic Azad University, Karaj, Iran.

4 Assistant Professor, Department of Financial Management, South Tehran Branch, Islamic Azad University, Tehran, Iran

Abstract

In general, economic development requires financing. However, exchange rate volatility hinders securing the capital needed for economic projects resulting from economic risks, transaction and money exchange. Taking into amount the importance of the role of exchange rate volatility, the main purpose of this study is to evaluate the effect of exchange rate volatility along with other macroeconomic variables on the inflow of foreign direct investment in various economic sectors of Iran (industry and oil, services, agriculture) by using the Approach of Autoregressive Distributed Lag (ARDL) during the period 1994 -2018. By using the theoretical literature presented in this study, FDI in Iran is considered a function of exchange rate volatility, capital productivity index, index of economic freedom, inflation rate, and economic growth rate, which according to the results, other than the variable the economic growth rate, the coefficients of all the variables are significant and the sign of their coefficients agrees with the theoretical expectations. Furthermore, the effect of capital productivity index and index of economic freedom variables on FDI was positive and the effect of exchange rate volatility and inflation rate on FDI is negative and increasing exchange rate volatility leads to a decrease in foreign direct investment in the Iranian economy.

Keywords

References

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Economic Strategy
Volume 11, Issue 41 - Serial Number 41
September 2022
Pages 119-144

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