Policy Reform, Adjustment Costs, and Investment: With Activity of Local Investors as a Signal

November 1, 1997

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Omotunde E. G. Johnson Policy Reform, Adjustment Costs, and Investment: With Activity of Local Investors as a Signal, (USA: International Monetary Fund, 1997) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Capital markets, Foreign direct investment, Labor, Private investment, Return on investment

Keywords: Foreign investor, Investor, Local investor, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/148
Stock No:

WPIEA1481997
ISBN:

9781451856781
ISSN:

1018-5941

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