Foreign capital and exchange rate movement in developing economies: a theoretical note

Anindya Biswas, Biswajit Mandal and Nitesh Saha

MPRA Paper from University Library of Munich, Germany

Abstract: This study attempts to provide with underlying theoretical explanations for exchange rate appreciation due to foreign capital inflow. We use an extended three sector specific factor model to explain why and how an inflow of foreign capital boosts the price of a nontradable good that helps tilting the exchange in rate in favor of the host country. We also strive to look at the possible consequences on factor prices and on sectoral de-composition of a representative economy.

Keywords: Foreign capital inflow; Real exchange rate; Developing economies (search for similar items in EconPapers)
JEL-codes: F21 F3 F31 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:52468

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