Foreign Direct Investment with Hysteresis: Short Term Rescue or Long Term Sentence?

Saziye Gazioglu and W. David McCausland
Additional contact information
Saziye Gazioglu: Department of Economics, University of Aberdeen, U.K.
W. David McCausland: Department of Economics, University of Aberdeen, U.K.

Ekonomia, 1998, vol. 2, issue 1, 29-46

Abstract: Foreign direct investment is often regarded by countries with balance of payments problems as a potential source of salvation. The consequences of a rise in foreign direct investment are analysed within a two-country, four-product, six-asset small macro model and is shown to have two distinct and offsetting effects. The first effect improves the balance of payments and prevents devaluation. The second effect depreciates the real exchange rate and raises the return on capital. In both cases net international debt increases. If foreign direct investment is withdrawn, a consequence of there being multiple equilibria in the model is that the domestic country may get stuck in a debt-trap. Similarly hysteric behaviour is displayed by the real exchange rate.

JEL-codes: F17 F21 F32 F34 F40 (search for similar items in EconPapers)
Date: 1998
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ekn:ekonom:v:2:y:1998:i:1:p:29-46

Access Statistics for this article

More articles in Ekonomia from Cyprus Economic Society and University of Cyprus Contact information at EDIRC.
Bibliographic data for series maintained by Managing Editor ( this e-mail address is bad, please contact ).