Capital flows and real exchange rate: does financial development matter?

Dyna Heng

MPRA Paper from University Library of Munich, Germany

Abstract: Volatile capital flows complicate emerging market economies’ macroeconomic management. This paper demonstrates that financial development helps reduce the impact of non-FDI inflows on real exchange rate appreciation. Using dynamic panel techniques and data from 78 developing economies for the period 1993-2009, this study finds that non-FDI has an appreciation impact on real exchange rate. However, the appreciation effects of FDI are not clear-cut. The empirical results also suggest that improving mobilization of financial resources through financial sector development helps dampen the real appreciation effects of non-FDI inflows. These results are useful for policy makers in their attempt to reconcile the dilemma of attracting foreign capital to enhance investment while maintaining competitiveness to promote exports and growth.

Keywords: capital flows; financial development; real exchange rate (search for similar items in EconPapers)
JEL-codes: E58 F31 F36 G38 (search for similar items in EconPapers)
Date: 2011-12, Revised 2012-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/48553/1/MPRA_paper_48553.pdf original version (application/pdf)

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:pra:mprapa:48553

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter (winter@lmu.de).