:: Volume 2, Issue 7 (6-2012) ::
2012, 2(7): 153-173 Back to browse issues page
The Effect of Capital Inflow on Real Exchange Rate in Developing Countries
Sajad Ebrahimi
Abstract:   (7634 Views)

  This study examines the theoretical and empirical aspects of the effect of capital inflow on exchange rate in 14 developing countries for the period 1980-2009. We developed an empirical model to investigate the effects of term of trade, real per capita output and trade openness on real exchange rate using d ynamic and heterogeneous panel and Pool Mean Group (PMG) methods. Estimation results show that various capital inflow channels have different effect on real exchange rate. For non-oil countries, only foreign aid inflow causes exchange rate appreciation in long-run and short-run and creates Dutch disease. In oil exporting countries, oil revenues and foreign direct investment cause exchange rate appreciation and create Dutch disease problems in the long-run. However, an increase in oil revenues in oil exporting countries causes more exchange rate appreciation than an increase in foreign direct investment.

Keywords: Capital inflow, Real Exchange Rate, Dutch disease, dynamic and heterogeneous panel.
Type of Study: Applicable | Subject: تجارت و مالیه بین الملل
Received: 2011/04/5 | Accepted: 2012/07/10 | Published: 2012/06/15

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Volume 2, Issue 7 (6-2012) Back to browse issues page