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DETERMINANTS, CONSEQUENCES AND A POLICY RESPONSE TO PRIVATE CAPITAL FLOWS IN DEVELOPING COUNTRIES

Abstract : This dissertation analyzes how developing countries could attract more private capital flows and benefit from these flows with higher productivity levels while avoiding some negative effects such as the appreciation of the real exchange rate. The first part of the dissertation analyzes the determinants of private flows from a macroeconomic perspective. The results show that infrastructure and financial development positively affect FDI and portfolio investment and that lax monetary policy significantly reduces portfolio investment (chapter 2). A firm-level analysis of the determinants of FDI strengthens the macroeconomic findings (chapter 3) and shows that better infrastructure, finance, and institutions stimulate FDI in the manufacturing sector. Human capital constraints are major obstacles for foreign firms exporting their production while financing constraints have more effect on foreign firms supplying the local market. In contrast with other developing countries, tax incentives do not seem to be successful in attracting capital flows to the manufacturing sector in Sub-Saharan African countries. The second part of the dissertation shows that public and private capital flows appreciate the real exchange rate, reducing countries' competitiveness (chapter 4). Among private flows, the real appreciation is higher for short-term flows such as portfolio investments than long-term flows (FDI and remittances). Exchange rate flexibility helps countries to dampen the appreciation of the real exchange rate stemming from capital inflows. A better investment climate for foreign firms significantly explains their higher productivity compared to local companies (chapter 5). Aggregate productivity would be significantly boosted if all firms face the investment climate of foreign firms. Finally, local firms supplying foreign companies with intermediate inputs exhibit higher productivity, highlighting the importance of vertical spillovers through backward linkages.
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Submitted on : Wednesday, October 28, 2009 - 1:22:07 PM
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Tidiane Kinda. DETERMINANTS, CONSEQUENCES AND A POLICY RESPONSE TO PRIVATE CAPITAL FLOWS IN DEVELOPING COUNTRIES. Humanities and Social Sciences. Université d'Auvergne - Clermont-Ferrand I, 2009. English. ⟨tel-00426893⟩

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