Economics at your fingertips  

On the relation between currency depreciation and domestic investment

Mohsen Bahmani-Oskooee () and Massomeh Hajilee

Journal of Post Keynesian Economics, 2010, vol. 32, issue 4, 645-660

Abstract: In introducing an absorption approach to the trade balance, Alexander (1952) argued that if wages do not adjust fully to the inflationary effects of devaluation, devaluation can redistribute income from workers to producers in the form of increased profits. Increased profits, in turn, could give incentive to producers to invest more. On the other hand, because devaluation raises the costs of imported inputs, it could lower profits. Depending on the relative strength of these two channels, domestic investment could increase or decrease. By giving greater consideration to the short-run and the long-run effect of currency depreciation on domestic investment, this paper presents empirical results from a time-series model of 50 countries. We find that the devaluation-investment link is mostly a short-run phenomenon. However, in 21 countries in which the short-run effects last into the long run, both views are supported, almost equally.

Keywords: bounds testing; devaluation; domestic investment (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Journal of Post Keynesian Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2019-10-08
Handle: RePEc:mes:postke:v:32:y:2010:i:4:p:645-660