The Impact of Capital and Foreign Exchange Flowson the Competitiveness of Developing Countries

Bassem Kamar (), Damyana Bakardzhieva, Sami Ben Naceur and Sami Ben Naceur
Authors registered in the RePEc Author Service: Ben Naceur

No 2010/154, IMF Working Papers from International Monetary Fund

Abstract: Attracting capital and foreign exchange flows is crucial for developing countries. Yet, these flows could lead to real exchange rate appreciation and may thus have detrimental effects on competitiveness, jeopardizing exports and growth. This paper investigates this dilemma by comparing the impact of six types of capital and foreign exchange flows on real exchange rate behavior in a sample of 57 developing countries covering Africa, Europe, Asia, Latin America, and the Middle East. The results reveal that portfolio investments, foreign borrowing, aid, and income lead to real exchange rate appreciation, while remittances have disparate effects across regions. Foreign direct investments have no effect on the real exchange rate, contributing to resolve the above dilemma.

Keywords: WP; capital; appreciation; investment; GDP; Real Exchange Rate; Competitiveness; Capital Flows; Developing Countries; FDI; Foreign Exchange Flows; Panel Data Econometrics; Emerging Markets; portfolio investment; REER appreciation; FDI flow; appreciation of the REER; portfolio investment outflow; investments flow; REER behavior; REER equilibrium; flows to the CEECS; portfolio investments to the region; REER determinant; Real effective exchange rates; Foreign direct investment; Portfolio investment; East Asia; South Asia; Africa (search for similar items in EconPapers)
Pages: 30
Date: 2010-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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