Foreign Investment under Inflationary Pressure: Macroeconomic Fragility in Zimbabwe

Foreign Investment under Inflationary Pressure: Macroeconomic Fragility in Zimbabwe | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Foreign Investment under Inflationary Pressure: Macroeconomic Fragility in Zimbabwe houssam boughabi This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8069078/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This research paper looks at the different economic factors that affect foreign investments in Zimbabwe, specifically the interaction between foreign investment and inflation changes. It delves into how central bank policy, in the face of erratic inflation, can affect the duration and the change of investment patterns in a macroeconomic environment full of uncertainties. The model presented in this paper embodies the interaction among inflation thresholds, money supply reactions, and capital inflows, thus depicting the scenarios of macroeconomic fragility due to late policy adjustments to structural shocks. The empirical analysis reveals an optimal inflation threshold of A*=3.02, beyond which real investment begins to decouple from monetary policy, and a neutral policy coefficient of a*=0.0000, indicating the complete erosion of policy traction under hyperinflation. These results suggest that Zimbabwe’s monetary authorities faced a regime in which stabilization efforts were rendered ineffective, emphasizing the importance of credibility restoration for regaining investment responsiveness. The findings pinpoint the issues of achieving a perfect equilibrium between inflation control and investment stimulation in a market environment with price instability. JEL Classification. E31, E52, F21, O55 Macroeconomics Inflation threshold Foreign investment Monetary policy Economic fragility Zimbabwe Full Text Additional Declarations The authors declare no competing interests. Supplementary Files Pythoncode.docx Python Code for the Models Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-8069078","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":542172915,"identity":"4a5896c3-87c9-439b-875e-c52da6c31442","order_by":0,"name":"houssam boughabi","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA5UlEQVRIiWNgGAWjYBACAyjNw9jMkPgAxOAjVosMc3vDYxCHh41YLTbsPQefSYBYBLWYs/cYf/xRs42Hd0ZyWuXXHDsZNgbmh49u4NFi2XPGTJrn2G0eyRlpabdltyUDHcZmbJyDz2E3csyYGdhu8xjOyEm7LbmNGaiFh02agBagw/7d5rG/kf+tWHJbPVFaDCR4227zMPYcSGP8uO0wEVrOHCuT5u0DamlvSJZm3Hach42ZkF+ON2/++OPbbXtQVH78ua3anp+9+eFjfFpQADMPmCRWOQgw/iBF9SgYBaNgFIwYAABAzEjADqqz6AAAAABJRU5ErkJggg==","orcid":"https://orcid.org/0009-0005-3492-1910","institution":"National Institute of Statistics and Applied Economics","correspondingAuthor":true,"prefix":"","firstName":"houssam","middleName":"","lastName":"boughabi","suffix":""}],"badges":[],"createdAt":"2025-11-09 12:43:20","currentVersionCode":1,"declarations":{"humanSubjects":false,"vertebrateSubjects":false,"conflictsOfInterestStatement":false,"humanSubjectEthicalGuidelines":false,"humanSubjectConsent":false,"humanSubjectClinicalTrial":false,"humanSubjectCaseReport":false,"vertebrateSubjectEthicalGuidelines":false},"doi":"10.21203/rs.3.rs-8069078/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-8069078/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":95655624,"identity":"a95b5f5b-cec7-458a-8a41-9ee73aeceb19","added_by":"auto","created_at":"2025-11-11 16:16:34","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":440479,"visible":true,"origin":"","legend":"","description":"","filename":"Article6.pdf","url":"https://assets-eu.researchsquare.com/files/rs-8069078/v1_covered_6c147991-fa0a-4d8e-ba09-34e9e131c5b6.pdf"},{"id":95591683,"identity":"5a4ff904-b1aa-4b96-af73-061ba29c3ddb","added_by":"auto","created_at":"2025-11-11 02:35:10","extension":"docx","order_by":1,"title":"","display":"","copyAsset":false,"role":"supplement","size":25125,"visible":true,"origin":"","legend":"\u003cp\u003ePython Code for the Models\u003c/p\u003e","description":"","filename":"Pythoncode.docx","url":"https://assets-eu.researchsquare.com/files/rs-8069078/v1/e4223fefe148ca44779710e6.docx"}],"financialInterests":"The authors declare no competing interests.","formattedTitle":"\u003cp\u003eForeign Investment under Inflationary Pressure: Macroeconomic Fragility in Zimbabwe\u003c/p\u003e","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"National Institute of Statistics and Applied Economics","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Inflation threshold, Foreign investment, Monetary policy, Economic fragility, Zimbabwe","lastPublishedDoi":"10.21203/rs.3.rs-8069078/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-8069078/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis research paper looks at the different economic factors that affect foreign investments in Zimbabwe, specifically the interaction between foreign investment and inflation changes. It delves into how central bank policy, in the face of erratic inflation, can affect the duration and the change of investment patterns in a macroeconomic environment full of uncertainties. The model presented in this paper embodies the interaction among inflation thresholds, money supply reactions, and capital inflows, thus depicting the scenarios of macroeconomic fragility due to late policy adjustments to structural shocks.\u003c/p\u003e\n\u003cp\u003eThe empirical analysis reveals an optimal inflation threshold of A*=3.02, beyond which real investment begins to decouple from monetary policy, and a neutral policy coefficient of a*=0.0000, indicating the complete erosion of policy traction under hyperinflation. These results suggest that Zimbabwe’s monetary authorities faced a regime in which stabilization efforts were rendered ineffective, emphasizing the importance of credibility restoration for regaining investment responsiveness. The findings pinpoint the issues of achieving a perfect equilibrium between inflation control and investment stimulation in a market environment with price instability.\u003c/p\u003e\n\u003cp\u003eJEL Classification. 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