Policy Reform, Adjustment Costs, and Investment: With Activity of Local Investors as a Signal
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Summary:
Adjustment assistance is provided to local investors responding to policy reform and facing adjustment costs, to facilitate their activity–a signal to foreign investors about the profitability of investing in the local economy. The government, in providing assistance, maximizes its utility subject to its budgetary constraint, taking into account the utility forgone in alternative uses of budgetary funds. Foreign investors use the signal to update beliefs about investors in the local economy and compute the expected return from investing in the country. The investment response of foreign investors depends on the expected return so computed relative to the expected returns in their alternative investments worldwide.
Series:
Working Paper No. 1997/148
Subject:
Capital markets Foreign direct investment Labor Private investment Return on investment
English
Publication Date:
November 1, 1997
ISBN/ISSN:
9781451856781/1018-5941
Stock No:
WPIEA1481997
Pages:
21
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