Does devaluation hurt private investment? The Indonesian case

Ajay Chhibber and Nemat Shafik

No 418, Policy Research Working Paper Series from The World Bank

Abstract: Devaluation affects investment because of its effect on the real supply price of capital goods; the real price of imported inputs, w???????????????hich together with capital goods are used to produce output; the real product wage and thereby profitability and investment; real income, which affects the demand for domestically produced goods; and nominal and real interest rates, which in turn affect investment. This paper discusses the channels between devaluation and private investment and sets out the error correction growth-investment model. It also describes the trends in Indonesia's key macroeconomic variables and policy changes that have driven investment behavior. The estimates of the model are presented with a set of simulations that look at the short- versus long-run implications of devaluation on private investment.

Keywords: Economic Theory&Research; Environmental Economics&Policies; Macroeconomic Management; International Terrorism&Counterterrorism; Trade and Regional Integration (search for similar items in EconPapers)
Date: 1990-05-31
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Citations: View citations in EconPapers (8)

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