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

Muhammad Ali Nasir, Ferhan Ahmad, Mushtaq Ahmad

Research output: Contribution to journalArticle

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.

Original languageEnglish
Article number20160012
Number of pages25
JournalGlobal Economy Journal
Volume17
Issue number1
DOIs
Publication statusPublished - 1 Mar 2017
Externally publishedYes

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