Can financial development cure the Dutch disease?

Abstract

We argue that, in improving the efficient allocation of resources, financial sector development should dampen the appreciation effect of capital inflows. Using dynamic panel data techniques, the paper finds that the exchange rate appreciation effect of FDI inflows is indeed attenuated when financial and capital markets are larger and more active. The main implication of these results is that one of the main dangers associated with large capital inflows in emerging markets—the destabilization of macroeconomic management due to a sizeable appreciation of the real exchange rate—can be mitigated partly by means of developing a deep financial sector. Copyright © 2010 John Wiley & Sons, Ltd.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 19 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.