IDEAS home Printed from https://ideas.repec.org/a/ekn/ekonom/v2y1998i1p29-46.html
   My bibliography  Save this article

Foreign Direct Investment with Hysteresis: Short Term Rescue or Long Term Sentence?

Author

Listed:
  • Saziye Gazioglu

    (Department of Economics, University of Aberdeen, U.K.)

  • W. David McCausland

    (Department of Economics, University of Aberdeen, U.K.)

Abstract

Foreign direct investment is often regarded by countries with balance of payments problems as a potential source of salvation. The consequences of a rise in foreign direct investment are analysed within a two-country, four-product, six-asset small macro model and is shown to have two distinct and offsetting effects. The first effect improves the balance of payments and prevents devaluation. The second effect depreciates the real exchange rate and raises the return on capital. In both cases net international debt increases. If foreign direct investment is withdrawn, a consequence of there being multiple equilibria in the model is that the domestic country may get stuck in a debt-trap. Similarly hysteric behaviour is displayed by the real exchange rate.

Suggested Citation

  • Saziye Gazioglu & W. David McCausland, 1998. "Foreign Direct Investment with Hysteresis: Short Term Rescue or Long Term Sentence?," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 2(1), pages 29-46, Summer.
  • Handle: RePEc:ekn:ekonom:v:2:y:1998:i:1:p:29-46
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ekn:ekonom:v:2:y:1998:i:1:p:29-46. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Managing Editor). General contact details of provider: http://edirc.repec.org/data/cyessea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.