The Effects of Inflation and Exchange Rate Policies on Direct Investment to Developing Countries

Abstract

This study focuses on the effects of inflation and exchange rate policy on direct investment flows to developing countries. We find that inflation does have a substantial negative effect on capital inflows. Our estimates indicate that this effect can be significantly reduced, but not eliminated, by following exchange rate policies which avoid substantial overvaluation of the currency. [F 30]

^*The authors wish to thank Richard C. K. Burdekin, Menzie Chinn, Cheryl Holsey, Manfred Keil, Pamela Martin and two anonymous referees for helpful comments on an earlier version of this paper.

^*The authors wish to thank Richard C. K. Burdekin, Menzie Chinn, Cheryl Holsey, Manfred Keil, Pamela Martin and two anonymous referees for helpful comments on an earlier version of this paper.

Notes

^*The authors wish to thank Richard C. K. Burdekin, Menzie Chinn, Cheryl Holsey, Manfred Keil, Pamela Martin and two anonymous referees for helpful comments on an earlier version of this paper.