The effect of temporary devaluation on foreign investment: A trade-theoretic analysis and an application to Mexico |
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| Authors: | Mriduchhanda Paul |
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| Affiliation: | Department of Economics, Rutgers , The State University of New Jersey , New Brunswick, USA |
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| Abstract: | 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. |
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| Keywords: | devaluation foreign investment borrowing lending interest rate |
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