Literature review

Introduction:
When the central bank designed the mechanism, Egypt was suffering from an acute shortage of
foreign currency. Strict capital controls had all but paralyzed trade and foreign investors in Egyptian
securities found they could not get their profits out of the country. For a fee, those who went through
the scheme were guaranteed their money back.

Dependent variable: repatriation mechanism

Independent: foreign direct investor (FDI)

The relationship
There is a direct relationship between (FDI) and repatriation mechanism as this mechanism had been
made for serving the (FDI) as after the two revolution the was a substantial doubt of Egypt economic
stability and due to the deficit in the balance of payment the country need to encourage the investors
to invest in Egypt so the central bank of Egypt come up with this mechanism to increase the amount of
FDI coming into Egypt to cover the deficit.
The relationship between FDI and decisions of central banks examples:
Much of the extant work focuses on the effect of central bank independence (CBI) on inflation and the
trade-off with economic growth (Grilli et al. 1991, Cukierman et al 1992, Franzese 1999, Keefer and
Stasavage 2003, Crowe and Meade 2008). This is mostly because bank independence has been seen
as a solution to the time inconsistency problem in monetary policy (Rogoff 1985) or as driven by
domestic politics (Bernhard 1998, Crowe and Meade 2008, Hallerberg 2002, Broz 2002). The extant
literature also shows that legal CBI is likely to be credible and thus affect domestic outcomes (like
inflation, money supply, fiscal deficits) predominantly in democracies, in countries with constraints on
executive power, and in those with a free press (Broz 2002, Keefer and Stasavage 2003, Bodea and
Hicks 2012, Bodea 2013).
Hooda (2009), conducted a research on FDI on the economy of India from 1991-2008 using simple
and multiple regression techniques. Found out that the main determinants of FDI in developing
countries are inflation, infrastructural facilities, exchange rates, stable political environment, interest
rates, labour costs and corporate taxes
Froot and Stein (1991) provide empirical evidence of increased inward FDI with currency depreciation
through simple regressions using a small number of annual US aggregate FDI observations which
Stevens (1997) findings are quite fragile to specification. Klein and Rosengren (1994), however,
confirm that exchange rate depreciation increases USFDI using various samples of USFDI
disaggregated by country source and type of FDI. Blonigen (2005) implicitly assumes that exchange
rate effects on FDI are symmetric and proportional to the size of the exchange rate movement
Interest rates: Gross and Trevino (1996) a relatively high interest rate in a host country has a positive
impact on inward FDI
Exchange rates: capture and measure the international competitiveness of countries. Froot and Stein
(1991) exchange rates can affect FDI through an imperfect capital market channel. In this case a real
depreciation of the domestic currency raises the wealth of foreign investors relative to that of domestic
investors and thereby increases FDI. Overvalued exchange rates are associated with shortages of
foreign currency, rent seeking and corruption, unsustainably large current account deficits, Balance of
Payment (BOP) crises, and stop and go macroeconomic cycles all of which are damaging FDI.
Inflation: “low inflation is taken to be a sign of internal economic stability in the host country. Any form
of instability introduces a form of uncertainty that distort investor perception of the future profitability in
the country, Akinboade, (2006). Wint and Williams (1994) show that a stable economy attracts more
FDI thus a low inflation environment is desired in countries that promote FDI as a source of capital
flow. Therefore the expected sign is negative relation to FDI