Impact of Change in Exchange Rate on Foreign Direct Investment: Evidence from Somalia

Abstract

The purpose of this study is to examine the influence of exchange rate on foreign direct investment in Somali. The study used location theory to analyze the data by applying multiple regression models under OLS method. The results show that the overall model is significant. There is a negative and significant relationship found between exchange rate and FDI, while, a positive and significant relationship is observed between inflation and domestic investment on FDI, and a negative but insignificant relationship is observed between lack of government and FDI.The strength of this research lies in its time limit. The scope of this research was for the less than 50 years ending and including the year 2010. It is not known whether the results would hold if a longer period would have been researched upon. Further it is not possible to tell whether the same findings will hold for the period after 2010. There is need for the government to retain tight monetary and fiscal policies in order to stable exchange rate in the Somalia. Central bank should promote monetary authorities at managing exchange rate effectively to attract foreign direct investors. while utilization location theory, this study contribute significant to the literature by adding new variable to the model lack of government.

Keywords- exchange rate, foreign direct investment and Somalia.