Testing the long-run relationship between exchange rate, oil price, FDI and GDP: an ARDL approach

Isaacs, Ziyaat and Masih, Mansur (2017): Testing the long-run relationship between exchange rate, oil price, FDI and GDP: an ARDL approach.

Abstract

This paper tests the relationship between exchange rate, oil price, FDI and GDP. South Africa, an energy dependent small open economy with a floating exchange rate is used as a case study using the Autoregressive Distributed Lag (ARDL) approach. The empirical results reveal that there are both long and short run relationship between exchange rate, oil price, GDP and FDI which are bilateral in nature. Since foreign investment can help promote economic growth, the findings tend to suggest that South Africa should make a concerted effort in devising polices that improve the level of FDI. In other words, they should provide more investment friendly climate for trade and efficient monetary policy since exchange rates and oil prices are evidenced to be the key determinants in attracting foreign direct investments.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate, oil price, FDI, GDP, ARDL, South Africa
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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