Capital Inflows, Resource Reallocation and the Real Exchange Rate

Abstract

A large capital inflow to a developing economy can potentially cause a real exchange rate appreciation that is detrimental to the prospects of its tradable sector; a phenomenon known as the Dutch disease. I analyze the effects of both the level and share of capital inflow on resource reallocation and real exchange rate movements in a small open economy. I… (More)

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5 Figures and Tables