Financial Development and Capital Flows: The Effect on the Real Exchange Rate

1
Dr. Ali Lamouchi
Dr. Ali Lamouchi
2
Ezzeddine Zouari
Ezzeddine Zouari
1 Faculty of Economic Sciences and Management of Sousse, Tunisia

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The object of this paper is to determine the role played by the financial development in the effect of capital flows on real effective exchange rates. Our object is based on the idea that a developed financial market allows a better allocation of resources. Using the methodology of dynamic panel co-integration for 38 developed and developing countries covering the period 1989-2011, the results show that in the long run the development of the financial sector can weaken the appreciation effect of capital flows on real effective exchange rates. Through the calculation of the threshold value, we can conclude that from a certain threshold of the indicators of financial development the capital flows can have a real depreciation effect on exchange rates.

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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

Data Availability

Not applicable for this article.

Dr. Ali Lamouchi. 2013. \u201cFinancial Development and Capital Flows: The Effect on the Real Exchange Rate\u201d. Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 13 (GJMBR Volume 13 Issue C3): .

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GJMBR Volume 13 Issue C3
Pg. 31- 42
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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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v1.2

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March 6, 2013

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English

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The object of this paper is to determine the role played by the financial development in the effect of capital flows on real effective exchange rates. Our object is based on the idea that a developed financial market allows a better allocation of resources. Using the methodology of dynamic panel co-integration for 38 developed and developing countries covering the period 1989-2011, the results show that in the long run the development of the financial sector can weaken the appreciation effect of capital flows on real effective exchange rates. Through the calculation of the threshold value, we can conclude that from a certain threshold of the indicators of financial development the capital flows can have a real depreciation effect on exchange rates.

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Financial Development and Capital Flows: The Effect on the Real Exchange Rate

Dr. Ali Lamouchi
Dr. Ali Lamouchi Faculty of Economic Sciences and Management of Sousse, Tunisia
Ezzeddine Zouari
Ezzeddine Zouari

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