The Relationship between Exchange Rate Uncertainty and Investment in Some of Sub-Saharan African Countries

Masood Soleymani and Ahmad Akbari.

Abstract

This paper examines the relationship between exchange rate uncertainty and domestic investment by using the fixed effect approach of panel data model. The results of the theoretical part show that there is nonlinear relationship between these two variables, it means exchange rate uncertainty and investment. We selected fifteen countries of the Sub- Saharan African countries and used the GARCH (1,1) approach to obtain the uncertainty of exchange rate for every country. The results of the estimation show that there is a negative relation between exchange rate uncertainty and investment and the share of investment from growth of GDP in these countries, is very small. In addition, the investment in these countries is very sensitive to exchange rate uncertainty not only in period of t but also about the exchange rate uncertainty in the other periods. The other result is that the share of investment from growth of GDP through two periods (it means the growth of GDP and its lag) is approximately same.

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