Assessing the impact of real effective exchange rate and its volatility on net FDI inflows to Canada: A sector-level analysis

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University of New Brunswick


This research investigates the relationship between REER and its volatility with FDI inflows to Canada, with a novel emphasis on sector-level analysis. The study utilizes time series data from 2007 to 2022 and employs the ARDL approach to assess short-run and long-run relationships. The findings reveal significant impacts of changes in GDP, REER, and its volatility on Total Net FDI in the short run, with lasting effects of lagged GDP, trade openness, REER, and its volatility on Total Net FDI in the long run. At the sectorial level analysis, net FDI inflows in Energy and mining, manufacturing, finance and insurance exhibit significant sensitivity with changes in REER, while volatility of REER have significant impact on FDI inflows in manufacturing industries and Finance and insurance sector in the short run. In the long-run, REER has significant influence on net FDI inflows in Energy and mining and also manufacturing industries.