Investigation of impact of the reel exchange rates on foreign capital investments using panel data analysis

This study investigates, using dynamic panel data models, the effects of the reel exchange rates on foreign capital investments, which could be considered in two categories: portfolio and foreign direct capital investments. In this context, 4 different models have been established by considering possible effects separately for developing and developed country groups. The factors of gross domestic product, real exchange rate and index of openness, which are considered to affect portfolio investments and foreign direct capital investments, were, in addition to the real effective exchange rates, included as endogenous variables in the respective models with a view to determining whether the countries dealt with in this study are in a position that is attractive to investors and to giving insights and make suggestions about what actions to be taken for this. In this study, the numbers of developed countries and of developing countries were assumed to be equal in order to reduce the relative effect of sample size. In this connection, a set of panel data consisting of the data on the relevant countries from the World Bank's database for the period between 2001 and 2017 was created. It was found out that, for the developing countries, the factors of index of openness and gross domestic product have impact on portfolio investments, while the factors of real interest rate and index of openness have impact on the foreign direct investments and that, for the developed countries, the index of openness impacts portfolio investments and the index of openness and real interest rate have impact on the direct foreign investments as is the case with the developing countries.