Does devaluation hurt private investment? The Indonesian case
AbstractDevaluation affects investment because of its effect on the real supply price of capital goods; the real price of imported inputs, w???????????????hich together with capital goods are used to produce output; the real product wage and thereby profitability and investment; real income, which affects the demand for domestically produced goods; and nominal and real interest rates, which in turn affect investment. This paper discusses the channels between devaluation and private investment and sets out the error correction growth-investment model. It also describes the trends in Indonesia's key macroeconomic variables and policy changes that have driven investment behavior. The estimates of the model are presented with a set of simulations that look at the short- versus long-run implications of devaluation on private investment.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 418.
Date of creation: 31 May 1990
Date of revision:
Economic Theory&Research; Environmental Economics&Policies; Macroeconomic Management; International Terrorism&Counterterrorism; Trade and Regional Integration;
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