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Foreign capital and exchange rate movement in developing economies: a theoretical note

Author

Listed:
  • Biswas, Anindya
  • Mandal, Biswajit
  • Saha, Nitesh

Abstract

This study attempts to provide with underlying theoretical explanations for exchange rate appreciation due to foreign capital inflow. We use an extended three sector specific factor model to explain why and how an inflow of foreign capital boosts the price of a nontradable good that helps tilting the exchange in rate in favor of the host country. We also strive to look at the possible consequences on factor prices and on sectoral de-composition of a representative economy.

Suggested Citation

  • Biswas, Anindya & Mandal, Biswajit & Saha, Nitesh, 2013. "Foreign capital and exchange rate movement in developing economies: a theoretical note," MPRA Paper 52468, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:52468
    as

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    File URL: https://mpra.ub.uni-muenchen.de/52468/1/MPRA_paper_52468.pdf
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    References listed on IDEAS

    as
    1. Jean-Jacques Nowak & Mondher Sahli & Pasquale M. Sgro, 2003. "Tourism, Trade And Domestic Welfare," Pacific Economic Review, Wiley Blackwell, vol. 8(3), pages 245-258, October.
    2. Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 371-378, October.
    3. World Bank, 2013. "World Development Indicators 2013," World Bank Publications, The World Bank, number 13191.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Foreign capital inflow; Real exchange rate; Developing economies;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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