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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. David Greenaway & Chong Hyun Nam, 1988. "Industrialisation and Macroeconomic Performance in Developing Countries under Alternative Trade Strategies," Kyklos, Wiley Blackwell, vol. 41(3), pages 419-435, August.
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    6. 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,.
    7. 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.
    8. 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:

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    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. Emara, Noha & El Said, Aya, 2019. "Sovereign Ratings, Foreign Direct Investment, and Financial Contagion: The Case of Emerging Markets," MPRA Paper 94504, University Library of Munich, Germany.
    4. Tri Wahyu Adi & Eri Prabowo & Oetami Prasadjaningsih, 2022. "Influence of Electricity Consumption of Industrial and Business, Electricity Price, Inflation and Interest Rate on GDP and Investments in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(3), pages 331-340, May.
    5. 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.
    6. 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.
    7. Noha Emara & Ayah El Said, 2021. "Sovereign ratings, foreign direct investment and contagion in emerging markets: Does being a BRICS country matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5217-5234, October.
    8. Angus C. Chu & Guido Cozzi & Yuichi Furukawa & Chih‐Hsing Liao, 2019. "Inflation and Innovation in a Schumpeterian Economy with North–South Technology Transfer," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 683-719, March.
    9. Kimiagari, Salman & Mahbobi, Mohammad & Toolsee, Tushika, 2023. "Attracting and retaining FDI: Africa gas and oil sector," Resources Policy, Elsevier, vol. 80(C).
    10. 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 Kiel).
    11. 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.
    12. Mohamed Abdelaziz Eissa & Mohammed M. Elgammal, 2020. "Foreign Direct Investment Determinants in Oil Exporting Countries: Revisiting the Role of Natural Resources," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 19(1), pages 33-65, April.

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