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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Article
Author(s)
Cristina Helena Pinto de Mello
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DOI:10.17265/1537-1506/2017.04.001
Affiliation(s)
ESPM-SP, São Paulo, Brazil
ABSTRACT
The
article deals with the relationship between the decision to invest and the exchange
rate. The literature relates investment at interest rate. An increase in the interest
rate would reduce the investment expenditure. Jorgenson’s equation uses the flexible accelerator model, taxation, and the cost of capital to explain and predict the amount
of investment in machinery and equipment. The relationship between the exchange
rate and the investment appears in the literature as a direct relation. An appreciated
exchange rate allows the importation of cheaper machinery and equipment and increases
productive investments. This paper proposes a modified equation in which the appreciated
exchange rate inhibits productive investments by reducing the expectation of profit,
either because the domestic market becomes more competitive or because exports decrease.
It still incorporates in the model of Jorgenson the idea that the unit cost of labor
is the relevant variable to explain the choice of investing, assuming a function
of production of fixed coefficients.
KEYWORDS
investment, exchange rate, economic development, decision, expectation, profit
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