The impact of the Exchange Rate Volatility on Foreign Direct Investment on Emerging European Economies : Empirical Evidence from Hungary, Poland, and Romania

Abstract

In this study, we focused on analyzing the impact of the exchange rate volatility on the FDI in three European Emerging economics, which are Hungary, Poland, and Romania. A lot of theories explained the relationship between these two variables; some theories found that the exchange rate volatility deters FDI, while others found that there is a positive relationship, which means that the volatility attracts FDI. The results showed that there is no significant relationship between exchange rate volatility and FDI in Hungary, while in Poland, the relationship in the short term is negative but turns positive in the long run, and for Romania, it is also a positive relationship, which aligns with the asset-acquisition channel. Regarding the financial development in the case of Romania, it deters the FDI.