Foreign Direct Investment, Aggregate Demand Conditions and Exchange Rate Nexus: A Panel Data Analysis of BRICS Economies

Global Economy Journal, Volume 17 (1) Pages 1-25, 2017

25 Pages Posted: 23 May 2017 Last revised: 5 Mar 2018

See all articles by Muhammad Ali Nasir

Muhammad Ali Nasir

Leeds Beckett University - Leeds Business School

Ferhan Ahmad

Independent

Mushtaq Ahmad

Independent

Date Written: May 1, 2017

Abstract

In this study, we attempt to provide underlying theoretical and empirical explanations for exchange rate appreciation due to foreign capital influx and aggregate demand conditions in the BRICS economies. The empirical analysis is based on a panel dataset of BRICS countries over the time period 1992–2013 to substantiate our theoretical findings. For panel co-integration, Pedroni and Johansen-Fisher panel co-integration tests are conducted to compare co-integration among panel countries. We also analyze the results from Dumitrescu-Hurlin panel causality test among variables and use Granger Causality to test for the causal patterns in each of the individual countries. Our findings showed that the exchange rate volatility is directly affected by the flows of FDI, GDP per capita, Capital formulation and House hold consumption. The results have profound implications in terms of exchange rate stability in the BRICS countries and associated risks.

Keywords: FDI; official exchange rate; panel data; co-integration; Pedroni

JEL Classification: C33; F21; F31; O55

Suggested Citation

Nasir, Muhammad Ali and Ahmad, Ferhan and Ahmad, Mushtaq, Foreign Direct Investment, Aggregate Demand Conditions and Exchange Rate Nexus: A Panel Data Analysis of BRICS Economies (May 1, 2017). Global Economy Journal, Volume 17 (1) Pages 1-25, 2017. Available at SSRN: https://ssrn.com/abstract=2972100

Muhammad Ali Nasir (Contact Author)

Leeds Beckett University - Leeds Business School ( email )

Leeds Beckett University
University 9 Queen Square ,City Campus
Leeds, LS1 3HE
United Kingdom

Ferhan Ahmad

Independent ( email )

No Address Available

Mushtaq Ahmad

Independent ( email )

No Address Available

Register to save articles to
your library

Register

Paper statistics

Downloads
6
Abstract Views
215
PlumX Metrics