FDI to Africa: The Role of Price Stability and Currency Instability

41 Pages Posted: 27 Jan 2006

See all articles by Kenneth Rogoff

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Carmen M. Reinhart

Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER)

Date Written: January 2003

Abstract

Africa lags behind other regions in attracting foreign direct investment (FDI). In some circumstances, there are obvious explanations for the absence of FDI, such as a high incidence of war. In this paper, we examine the role that monetary and exchange rate policy may have played in explaining this outcome. Specifically, we document the incidence of inflationary episodes and currency crashes in order to compare countries within the region as well as to make comparisons with other regions. Furthermore, since monetary policy can range from very transparent to very opaque, we assess Africa`s track record with dual and parallel markets. We use the parallel market premia as an indicator of the degree of distortions and extent of transparency. Our findings suggest that this is a promising line of inquiry because Africa does stand apart from other regions in this measure of transparency. We also discuss some of the fiscal underpinnings of Africa`s bouts with high inflation.

Keywords: Parallel markets, inflation, capital controls, conflict

JEL Classification: F0, F4

Suggested Citation

Rogoff, Kenneth S. and Reinhart, Carmen M., FDI to Africa: The Role of Price Stability and Currency Instability (January 2003). IMF Working Paper, Vol. , pp. 1-41, 2003. Available at SSRN: https://ssrn.com/abstract=879085

Kenneth S. Rogoff (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Carmen M. Reinhart

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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