IDEAS home Printed from https://ideas.repec.org/a/sae/fortra/v55y2020i2p189-198.html
   My bibliography  Save this article

A Theoretical Note on Sector-specific FDI Inflow in Developing Economies and the Real Exchange Rate

Author

Listed:
  • Biswajit Mandal
  • Prasun Bhattacharjee

Abstract

Using a hybrid of the Heckscher–Ohlin model and specific factor model of trade, this article considers the phenomenon of FDI inflows only in the exportable sector of developing economies. We investigate the impact of such capital flow on factor prices and the real exchange rate (RER) in the host country. Our results indicate that the exportable production expands while both the non-traded good production and the return to the factor specific to the non-traded good decrease, consequent upon an inflow of capital specific to the exportable sector. The effect of such inflow of foreign capital on the RER is unambiguous and it increases. JEL Codes: F1, F21, F31

Suggested Citation

  • Biswajit Mandal & Prasun Bhattacharjee, 2020. "A Theoretical Note on Sector-specific FDI Inflow in Developing Economies and the Real Exchange Rate," Foreign Trade Review, , vol. 55(2), pages 189-198, May.
    • Handle: RePEc:sae:fortra:v:55:y:2020:i:2:p:189-198
    DOI: 10.1177/0015732519894135
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0015732519894135
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0015732519894135?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Anindya Biswas & Biswajit Mandal & Nitesh Saha, 2014. "Foreign Capital Inflow and Real Exchange Rate Appreciation in Developing Economies: Theory and Empirical Evidence," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 14(03n04), pages 453-465, 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. Biswajit Mandal & Sugata Marjit, 2012. "Capital inflow, vanishing sector and wage distribution in an economy with corruption related intermediation," Economics Bulletin, AccessEcon, vol. 32(3), pages 2128-2135.
    4. Ronald W. Jones, 2018. "The Structure of Simple General Equilibrium Models," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 4, pages 61-84, World Scientific Publishing Co. Pte. Ltd..
    5. Jones, R.W. & Marjit, S., 1992. "International Trade and Endogenous Production Structures," RCER Working Papers 312, University of Rochester - Center for Economic Research (RCER).
    6. Mandal, Biswajit & Marjit, Sugata, 2013. "Trade reform, intermediation and corruption," Economic Modelling, Elsevier, vol. 33(C), pages 741-746.
    7. Linda Akoto & Daniel Sakyi, 2019. "Empirical Analysis of the Determinants of Trade Balance in Post-liberalization Ghana," Foreign Trade Review, , vol. 54(3), pages 177-205, August.
    8. Mandal, Biswajit & Marjit, Sugata, 2010. "Corruption and wage inequality?," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 166-172, January.
    9. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 584-584.
    10. Sugata Marjit & Biswajit Mandal, 2012. "Domestic trading costs and pure theory of international trade," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 165-178, June.
    11. Farole, Thomas, 2010. "Second best ? investment climate and performance in Africa's special economic zones," Policy Research Working Paper Series 5447, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mandal, Biswajit & Biswas, Anindya, 2015. "Sector Specific Inflow of capital, Non-Traded sector and an Increase in Real Exchange Rate," MPRA Paper 68226, University Library of Munich, Germany.
    2. Mandal, Biswajit, 2014. "Traded Goods, Tax and Intermediation - the Role of Corrupt Nontraded Sector," MPRA Paper 56525, University Library of Munich, Germany.
    3. Mandal Biswajit, 2018. "Tax on Traded Goods, and Corrupt Non-traded Goods Sector: Implications for Intermediation Activities," Review of Economics, De Gruyter, vol. 69(1), pages 27-41, April.
    4. Mandal, Biswajit & Roy Bardhan, Arya, 2023. "Controlling Environmental Pollution, Sectoral Composition and Factor Prices: A H-O and SFM Hybrid Approach," MPRA Paper 116961, University Library of Munich, Germany.
    5. Saibal KAR & Biswajit MANDAL & Sugata MARJIT & Vivekananda MUKHERJEE, 2020. "Seeking Rent In The Informal Sector," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 91(1), pages 151-164, March.
    6. Mandal, Biswajit & Marjit, Sugata, 2013. "Trade reform, intermediation and corruption," Economic Modelling, Elsevier, vol. 33(C), pages 741-746.
    7. Marjit, Sugata & Mandal, Biswajit, 2010. "Extortion and Informal Sector in a Small Open Economy," MPRA Paper 25044, University Library of Munich, Germany.
    8. Biswajit Mandal, 2022. "Lower Corruption Warrants Less, but Higher Corruption Removes it: A Ricardian Note," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(2), pages 479-486, June.
    9. M. Ali Khan, 2007. "The Harris-Todaro Hypothesis," PIDE-Working Papers 2007:16, Pakistan Institute of Development Economics.
    10. Biswajit Mandal & Arindam Mandal, 2015. "A Note on How and Why Growth and Unemployment Go Hand in Hand in Developing Economies," International Economic Journal, Taylor & Francis Journals, vol. 29(4), pages 681-693, December.
    11. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    12. Biswajit Mandal & Sujata Ghosh, 2020. "Communication Cost, Skilled-Unskilled Wage, and Informality," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(4), pages 927-939, December.
    13. Sugata Marjit & Biswajit Mandal, 2016. "Finite Change—Implication for Trade Theory, Policy and Development," India Studies in Business and Economics, in: S. Mahendra Dev & P.G. Babu (ed.), Development in India, edition 127, chapter 0, pages 271-282, Springer.
    14. Jiancai Pi & Pengqing Zhang, 2017. "Social conflict and wage inequality," Journal of Economics, Springer, vol. 121(1), pages 29-49, May.
    15. Mandal, Biswajit & Roy, Sangita, 2016. "Trade liberalization and wage distribution when skilled intermediate input is used in import competing sector that uses a commom type of capital," MPRA Paper 87460, University Library of Munich, Germany.
    16. Mandal, Biswajit & Roy, Sangita, 2017. "Trade liberalization, Skilled Intermediate input and Wage Distribution," MPRA Paper 87459, University Library of Munich, Germany.
    17. Biswajit Mandal, 2016. "Recessionary Shock, Capital Mobility and the Informal Sector," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 17(1), pages 149-162, March.
    18. Gasmi, Farid & Laourari, Imène, 2017. "Has Algeria suffered from the dutch disease?: Evidence from 1960–2013 data," TSE Working Papers 17-780, Toulouse School of Economics (TSE).
    19. Sugata Marjit & Biswajit Mandal, 2016. "International Trade, Migration and Unemployment – The Role of Informal Sector," Economics and Politics, Wiley Blackwell, vol. 28(1), pages 8-22, March.
    20. Pi, Jiancai & Zhang, Pengqing, 2018. "Skill-biased technological change and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 347-362.

    More about this item

    Keywords

    Foreign capital inflow; real exchange rate; developing economies; trade; special economic zone;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    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:sae:fortra:v:55:y:2020:i:2:p:189-198. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.