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The Effects of Inflation and Exchange Rate Policies on Direct Investment to Developing Countries

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  • Young Seok Ahn
  • Slamet Seno Adji
  • Thomas Willett

Abstract

This study focuses on the effects of inflation and exchange rate policy on direct investment flows to developing countries. We find that inflation does have a substantial negative effect on capital inflows. Our estimates indicate that this effect can be significantly reduced, but not eliminated, by following exchange rate policies which avoid substantial overvaluation of the currency. [F 30]

Suggested Citation

  • Young Seok Ahn & Slamet Seno Adji & Thomas Willett, 1998. "The Effects of Inflation and Exchange Rate Policies on Direct Investment to Developing Countries," International Economic Journal, Taylor & Francis Journals, vol. 12(1), pages 95-104.
  • Handle: RePEc:taf:intecj:v:12:y:1998:i:1:p:95-104
    DOI: 10.1080/10168739800000006
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    References listed on IDEAS

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    1. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    2. Kamin, Steven B., 1993. "Devaluation, exchange controls, and black markets for foreign exchange in developing countries," Journal of Development Economics, Elsevier, vol. 40(1), pages 151-169, February.
    3. Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, vol. 13(2), pages 161-175, February.
    4. Agenor, P.R., 1992. "Parallel Currency Markets in Developing Countries : Theory, Evidence, and Policy Implications," Princeton Studies in International Economics 188, International Economics Section, Departement of Economics Princeton University,.
    5. Sebastian Edwards, 1990. "Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries," NBER Working Papers 3497, National Bureau of Economic Research, Inc.
    6. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-555, June.
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    Cited by:

    1. Céline Azémar & Rodolphe Desbordes, 2009. "Public Governance, Health and Foreign Direct Investment in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 18(4), pages 667-709, August.
    2. Tidiane KINDA, 2010. "Increasing Private Capital Flows To Developing Countries: The Role Of Physical And Financial Infrastructure In 58 Countries, 1970-2003," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
    3. Okafor, Godwin & Piesse, Jenifer & Webster, Allan, 2015. "The motives for inward FDI into Sub-Saharan African countries," Journal of Policy Modeling, Elsevier, vol. 37(5), pages 875-890.
    4. Kinda, Tidiane, 2008. "Les déterminants des flux de capitaux privés dans l’UMOA: Une approche empirique sur données de panel
      [The determinants of private capital inflows in WAEMU: A panel data approach]
      ," MPRA Paper 19159, University Library of Munich, Germany.
    5. Hawkes, Denise Donna & Yerrabati, Sridevi, 2015. "Institutions and investment in South and East Asia & Pacific region: Evidence from meta-analysis," Economics Discussion Papers 2015-62, Kiel Institute for the World Economy (IfW).
    6. Kinda, Tidiane, 2007. "Increasing private capital flows to developing countries: The role of physical and financial infrastructure," MPRA Paper 19163, University Library of Munich, Germany.

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