Impact of an unexplained component of real exchange rate volatility on FDI: Evidence from transition countries |
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| Authors: | Suzana Balaban Dejan Živkov Ivan Milenković |
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| Affiliation: | 1. Faculty of Economics in Subotica, University of Novi Sad, Stevana Hatale 12, 21400, Ba?ka Palanka, Serbia;2. Novi Sad School of Business, University of Novi Sad, Vladimira Peri?a Valtera 4, 21000, Novi Sad, Serbia;3. Faculty of Economics in Subotica, University of Novi Sad, Segedinski put 9-11, 24000, Subotica, Serbia |
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| Abstract: | The aim of this paper is to examine the impact of an unexplained component of real exchange rate volatility on FDI in transition economies. We make an attempt to overcome some problems associated with previous studies; the aggregation problem, inadequate measures of volatility, short-run focus and the endogeneity problem. Using a GARCH specification, we focus on long-run volatility, while we control for the endogeneity problem by applying SYS-GMM estimation. The obtained results show that the impact of the unexplained component of real exchange rate volatility on FDI differs among economic activities since 2000. As part of the re-estimation exercise, we use two alternative measures of volatility to avoid arbitrariness. The obtained results are to a large extent in accordance with the first one. |
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| Keywords: | Corresponding author. C22 C33 C36 F21 F31 Exchange rate volatility GARCH FDI Transition countries SYS-GMM |
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