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Does Inflation Targeting Matter for Attracting Foreign Direct Investment into Developing Countries?

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  • René TAPSOBA

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

Abstract

This paper investigates the effect of Inflation Targeting (IT) on Foreign Direct Investment (FDI). Based on panel data of 53 developing countries over the period 1980-2007, this study is the first, to the best of the author’s knowledge, to evaluate directly the effect of IT on FDI. Using a variety of propensity scores-matching methods which allow controlling for selfselection in policy adoption, it finds that the treatment effect of IT on FDI is positive, statistically significant and robust to a set of alternative specifications. In terms of policy recommendations, this finding therefore suggests that if well implemented, IT adoption can be a legitimate part of the policy toolkit available to policymakers in developing countries in their competition to attract more FDI.

Suggested Citation

  • René TAPSOBA, 2012. "Does Inflation Targeting Matter for Attracting Foreign Direct Investment into Developing Countries?," Working Papers 201203, CERDI.
    • Handle: RePEc:cdi:wpaper:1322
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    Cited by:

    1. Chenaf-Nicet, Dalila & Rougier, Eric, 2016. "The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements," International Economics, Elsevier, vol. 145(C), pages 66-91.
    2. Abdelkader Aguir, 2017. "Stability and Economic Performance of the Inflation-Targeting Policy Facing the Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 448-452.
    3. Bao-We-Wal Bambe & Jeans-Louis Combes & Kabinet Kaba & Alexandru Minea, 2022. "Inflation Targeting and Developing countries' Performance: Evidence from Firm-Level Data," Working Papers hal-04638825, HAL.
    4. Bao-We-Wal BAMBE, 2022. "Inflation Targeting and Private Domestic Investment in Developing Countries," Working Papers REM 2022/0237, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Iuliia Vasileva, 2018. "The Effect of Inflation Targeting on Foreign Direct Investment Flows to Developing Countries," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 459-470, December.
    6. Yacouba COULIBALY & Alexandru MINEA & Patrick VILLIEU, 2022. "How Do Natural Resource – Backed Loans Affect the Public Debt Sustainability in Developing Countries? Empirical Evidence," LEO Working Papers / DR LEO 2937, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    7. Abdelkader Aguir, 2017. "Stability and Economic Performance of the Inflation-Targeting Policy Facing the Crisis," Post-Print hal-03791276, HAL.
    8. Andreea TRIMBITAS & Andrei VECERDEA, 2013. "Foreign Direct Investment Drivers in Romania," Expert Journal of Finance, Sprint Investify, vol. 1(1), pages 33-42, December.
    9. Adel Boughrara and Ichrak Dridi, 2017. "Does Inflation Targeting Matter for Foreign Portfolio Investment: Evidence from Propensity Score Matching," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 42(2), pages 67-86, June.

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    More about this item

    Keywords

    Inflation Targeting; Foreign direct investment; Propensity Scores-Matching; Developing Countries.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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