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

Author/Editor: Rogoff, Kenneth | Reinhart, Carmen
Authorized for Distribution: January 1, 2003
Electronic Access: Free Full Text (PDF file size is 1,243KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
Series: Working Paper No. 03/10
Subject(s): Foreign investment | Africa | Price stabilization | Parallel exchange markets | Inflation | Capital controls | Currencies
Author's keyword(s): Parallel markets | inflation | capital controls | and conflict
 
English  
    Published:   January 1, 2003        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA0102003   Pages:   40
    Price:   US$15.00
       
     
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