THE IMPACT OF CURRENCY FLUCTUATIONS ON FOREIGN DIRECT INVESTMENT (FDI) IN DEVELOPING COUNTRIES: THE PERSPECTIVE OF ZAMBIA

Abstract

Over the last few decades, most scholarly writing has focused on foreign direct investment. The multiple benefits that come with Foreign Direct Investments in host nations, particularly developing ones, have been hotly disputed. In their desire for economic progress, several developing countries have devised schemes to attract foreign direct investment into their countries. The majority of research discusses money inflows, skill exchanges, and technical transfers, among other things. A literature search finds that much of the literature also thrusts on the factors that influence FDI inflows to these nations, and it's worth noting that little has been written about the relationship between currency exchange rates and FDI inflows. This inspired the author to conduct a study on the subject, namely how currency fluctuations affect FDI flows into Zambia. Secondary data was collected from the Bank of Zambia's archived publications on average FDI yearly flows and average yearly exchange rates, US Dollar to Zambian Kwacha, for 14 years from 2006 to 2019. Currency fluctuations and FDI flows into the countries have a positive association, according to the study. Investors have recognized inflation and economic growth as important motivators and demotivators. Policymakers should put less effort into managing exchange rate fluctuations, according to this study's recommendations, to attract more FDI to power the country's Vision 2030 pillars. Other FDI characteristics that have a major impact on flows, however, deserve further attention and research. With emerging sectors such as energy and growing interest from nations such as China in emerging markets in Africa, more research is needed to increase the knowledge on the main determinants of FDI for the country to achieve mid-income country status.