Munich Personal RePEc Archive

Sector Specific Inflow of capital, Non-Traded sector and an Increase in Real Exchange Rate

Mandal, Biswajit and Biswas, Anindya (2015): Sector Specific Inflow of capital, Non-Traded sector and an Increase in Real Exchange Rate.

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Abstract

This paper attempts to look at the effect of inflow of foreign capital only in the exportable sector on the factor prices and real exchange rate of the concerned economy. In doing so we frame a blend of Heckscher-Ohlin and Specific Factor model of trade which is popularly known as H-O nugget. We show that consequent upon an inflow of capital specific to exportable sector both the non-traded good production and return to the factor specific to non-traded good are reduced while the exportable production expands. The effect of such an inflow on real exchange rate is unambiguous and it increases.

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