The Effect of Exchange Rate Fluctuations on FDI Absorption in Iran: Markov-Switching Approach

One of the determining factors in the process of globalization is the flow of foreign investment. Among the factors affecting investor flows, the exchange rate is considered one of the determining factors. Therefore, considering the importance of the role of exchange rate uncertainty in economic growth and development of countries, in this study using the nonlinear Markov-switching approach to investigate the effects of real exchange rate uncertainty on foreign direct investment in Iran during 1992-2017. Has been. The results show that the real exchange rate uncertainty in the first regime has a negative effect and in the second regime has a positive effect on FDI absorption. On the other hand, the degree of trade openness and GDP growth rate in both regimes one and two have increased FDI absorption. Inflation rate has a negative effect on the first regime and a positive effect on FDI absorption in the second regime. Inflation and exchange rates in the first regime have a negative effect and in the second regime have a positive effect on FDI absorption. Finally, the variable of the realization of oil revenues (indicating the effect of sanctions) in the first regime has a positive effect and in the second regime has a negative effect on attracting foreign direct investment in Iran.