The Impact of Misalignment on FDI in the Developing Countries


  • Abdessalem Gouidar
  • Ridha Nouira


This paper contributes to a current and intense debate among economists concerning the impact that real exchange rate misalignment can have on FDI. To identify the degree of misalignment, a model of Edwards in Panel will be estimated for a sample of 52 developing countries over the period 1980-2010. Once the misalignment values ​​are determined, they will be included in the FDI model. The results prove that the misalignment is a main determinant of the FDI in the developing countries. Indeed, the overvaluation has a negative and significant effect on the FDI while undervaluation does not have a significant effect on it. Finally, a persistent overvaluation in developing countries can slow down the flow of FDI to these countries, whereas the persistent undervaluation stimulates these flows.

Keywords:  Foreign direct investment; Overvaluation; Undervaluation

JEL Classifications: C21; C23; F31; F33 


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How to Cite

Gouidar, A., & Nouira, R. (2014). The Impact of Misalignment on FDI in the Developing Countries. International Journal of Economics and Financial Issues, 4(4), 784–800. Retrieved from