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The effect of temporary devaluation on foreign investment: A trade-theoretic analysis and an application to Mexico

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  • Mriduchhanda Paul
  • Sajal Lahiri
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    Abstract

    We develop a two-period model with foreign investment and international borrowing and lending. We find that temporary devaluation has no effect on contemporaneous foreign investment, but the effect on future foreign investment is positive via the working of the credit market. These findings are then tested for Mexico with regression analysis.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09638190701872723
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

    Volume (Year): 17 (2008)
    Issue (Month): 2 ()
    Pages: 243-255

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    Handle: RePEc:taf:jitecd:v:17:y:2008:i:2:p:243-255

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    Keywords: devaluation; foreign investment; borrowing; lending; interest rate;

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