The Effects of Financial Dollarization on Foreign Direct Investment in Ghana

Abstract

The impact of financial dollarization on foreign direct investment was examined in this article. Augmented Dickey-Fuller (ADF) tests were used to verify the series' unit root. Unit root test results showed that all variables were stationary at a 5% significant level in I(0) or I(1) difference. Consequently, the analysis employed the Dynamic Ordinary Least Square regression model. Data from quarterly time series covering the years 2000 to 2021 were used in this article. According to the results, financial dollarization has a negative long-and shortterm impact on foreign direct investment in Ghana. To reverse Ghana's trend of financial dollarization and draw in much foreign direct investment, it is advised that government policies concentrate on re-establishing trust, and confidence in the national currency. Also, monetary authorities should ensure that the is a more robust macroeconomic stability such as an institution to enforce risk hedging instruments domestically.