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

January 1, 2003

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Format: Chicago

Carmen Reinhart, and Kenneth Rogoff. FDI to Africa: The Role of Price Stability and Currency Instability, (USA: International Monetary Fund, 2003) accessed November 21, 2024

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.

Subject: Balance of payments, Central banks, Currencies, Exchange rate arrangements, Foreign direct investment, Foreign exchange, Inflation, Money, Prices, Quasi-fiscal operations

Keywords: Africa, Asia and Pacific, Capital controls, Central bank, CFA country, CFA franc, Chronic-inflation crisis, Conflict, Country particular, Country reform, Crisis outcome, Currencies, Currency crash, Exchange rate arrangements, Foreign direct investment, Government surplus, Governments desperate, High-inflation Western Hemisphere region, Inflation, Inflation country, Inflation rate, Mi fontweight, Monetary policy, North Africa, Parallel markets, Pound sterling, Quasi-fiscal operations, Sub-Saharan Africa, Western Hemisphere, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/010
Stock No:

WPIEA0102003
ISBN:

9781451842715
ISSN:

1018-5941

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