Published Paper Details:

The present research objective is to investigate the impact of real exchange rate volatility on foreign direct investment (FDI) in Egypt, utilizing quarterly data from the Central Bank of Egypt (CBE) spanning the period 2001-2024, given Egypt's sequential currency devaluations intended to attract capital inflows and strengthen economic resilience, the study explores how exchange rate fluctuations influence investor decisions and the dynamics of FDI in the short-run and long-run. The study utilizes a comprehensive econometric framework. Stationarity is examined using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests, while asymmetric volatility responses are captured using the EGARCH model. Long-run cointegration with macro-financial variables is assessed using the ARDL approach, supported by Error Correction Models (ECMs). Robustness of the estimated models is validated through extensive diagnostics, including Durbin-Watson and Breusch-Pagan-Godfrey for serial correlation, White's test for heteroscedasticity, Jarque-Bera for normality, and Variance Inflation Factor (VIF) for multicollinearity. Structural stability is further confirmed using CUSUM and CUSUM of squares, ensuring methodological credibility and reliability of the findings. The ARDL cointegration analysis validates FDI sensitivity to REXR, confirming that real exchange rate volatility has a significantly negative impact on aggregate FDI in Egypt across both short- and long-run horizons. Diagnostic evaluations affirm the robustness of the model, which explains 79.3% of FDI variation when macroeconomic control variables are included. Market size (GDP) emerges as a key determinant, while inflation (CPI) and external debt (EXDBTG) impose destabilizing pressures on investment flows. Conversely, market capitalization (MCAP) exerts a positive influence, supporting the role of financial market development in attracting foreign capital. Overall, the findings highlight that exchange rate instability interacts with macro-financial fundamentals, reinforcing the need for policy frameworks that mitigate volatility and strengthen structural conditions. The study outlines key policy implications. The findings suggest that excessive volatility fluctuations diminish investor confidence, requiring intervention by the Central Bank of Egypt (CBE) through measures such as smoothing volatility, providing investment guarantees, and strengthening foreign exchange reserves. Credible coordination of fiscal, monetary, and macroeconomic frameworks is essential to secure financial and exchange rate stability. Ultimately, a consistent and sustainable comprehensive economic policy framework reduces uncertainty, enhances investor confidence, and fosters a predictable environment conducive to long-term investment decisions.