Page 55 - 2022 Abstract Book RUICHSS_2022_11_17 after conference

University of Ruhuna ISSN: 2706-0063
Matara, Sri Lanka

The Revolving Dynamics of Exchange Rate on FDI in South
Asian Countries; A Study Based on Wavelet Coherence
Technique

Gayan Vidyapathirana, Chanaka Fernando*, Chanuka Sandaruwan, Sanduni
Lakshani, Ruwan Jayathilaka, and Sumudu Munasinghe
SLIIT Business School, Sri Lanka Institute of Information Technology.
bm19551944@my.sliit.lk

The study aims to establish the dynamic correlation and/or causality of the Exchange
Rate (ER) on Foreign Direct Investment (FDI) at different frequencies and at different
periods in the South Asian Region. The study employed panel data for eight countries
in South Asia, considering the period 2002 to 2020. The novelty of this study is that,
to the best of the authors’ knowledge, it is a pioneer study done by local researchers
that uses current panel data methodology to observe the causal relationship of the
study variables in South Asia. The Wavelet Coherence Technique was used to
analyze data, whilst the analysis implies a negative bidirectional correlation between
the exchange rate and FDI in the short run. Additionally, the cone of influence
demonstrates no specific correlation either in the medium or long-term, excluding the
short term.

Keywords: Exchange Rate, FDI, South Asia, Wavelet Coherence

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