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

Mriduchhanda Paul and Sajal Lahiri

Journal of International Trade & Economic Development, 2008, vol. 17, issue 2, pages 243-255

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.

Keywords: devaluation; foreign investment; borrowing; lending; interest rate (search for similar items in EconPapers)
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:taf:jitecd:v:17:y:2008:i:2:p:243-255

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