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


  • Mriduchhanda Paul
  • Sajal Lahiri


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.

Suggested Citation

  • Mriduchhanda Paul & Sajal Lahiri, 2008. "The effect of temporary devaluation on foreign investment: A trade-theoretic analysis and an application to Mexico," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(2), pages 243-255.
  • Handle: RePEc:taf:jitecd:v:17:y:2008:i:2:p:243-255
    DOI: 10.1080/09638190701872723

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