Real Effective Exchange Rates and Foreign Direct Investment Inflows: Empirical Evidence from India’s Sub-National Economies

This paper investigates the impact of real effective exchange rates (REER), both in terms of levels and volatility, on foreign direct investment (FDI) inflows for a panel of 35 Indian sub-national economies over the period 2000-2013. In light of the asymmetric distribution of FDI inflows within India, we focus on examining the nexus between FDI inflows at the sub-national level and India’s competitiveness captured by REER. Our empirical analysis reveals that movements in REER have a significant and negative impact on FDI inflows, while REER volatility is found to be inducing FDI. Our results are suggestive that FDI inflows into India are largely domestic market oriented in nature. Purpose: In light of the asymmetric distribution of FDI inflows within India, we focus on examining the nexus between foreign direct investment (FDI) inflows at the sub-national level and India’s competitiveness captured by real effective exchange rates (REER). This paper investigates the impact of REER, both in terms of levels and volatility, on FDI inflows to 35 Indian sub-national economies over the period 2000-2013. Research Methodology: To examine the impact of REER on FDI inflows, we compile a panel dataset for 35 sub-national economies covering the time period 2000 to 2013. We employ panel fixed effects models to explore our relationship of interest between REER and FDI, controlling for other characteristics specific to a sub-national economy.Findings: Our empirical analysis reveals that movements in REER have a significant and negative impact on FDI inflows, while REER volatility is found to be inducing FDI. Our results are suggestive that FDI inflows into India are largely domestic market-oriented in nature. Originality/Value: Considering that India’s FDI inflows exhibit significant concentration patterns among selected regions, we exploit this heterogeneity at the sub-national level to empirically understand the determinants of FDI, with a particular focus on cost competitiveness as captured by REER. The extant literature has not explicitly focused on testing the impact of REER both in terms of its levels and volatility on FDI inflows to India at the sub-national level, especially not at the sub-national level. While admittedly the exchange rate varies only at the national level, the value-addition comes from understanding its interaction with state-varying macroeconomic indicators

Measuring Cost of Living for Ordinary Residents in Cities: A New Index

Cost of living is an important indicator to track and monitor basic living standards for cities. There is no reliable and consistent index available in the literature for comparing the cost of living across different major cities to guide policy analysis. Commercial cost of living surveys, while very useful in facilitating compensation decisions for expatriate managers, are inadequate as they do not account for differences in consumption patterns among cities and also do not consider differences in lifestyles between ordinary residents and expatriates across cities. In this context, this paper makes a pioneering attempt in the literature to come up with a comprehensive way to measure the cost of living for ordinary residents of 103 cities in the world. One of the features of the paper’s empirical methodology is that it makes a distinction between the cost of living for expatriates and ordinary residents. We focus on the results pertaining to ordinary residents in this paper

Slow Growth and Sluggish Manufacturing in Indonesia’s Less Competitive Provinces: A Geweke Causality Analysis

This article presents a causality analysis of lagging economic growth in two Indonesian provinces: East Nusa Tenggara and North Maluku. We identify three variables which stand out for some of Indonesia’s economically challenged provinces: consistently low gross domestic product (GDP) growth, low levels of manufacturing, and under-utilisation of labour. Using Geweke causality analysis, we identify and measure the direction of causal effects between these variables. Our empirical findings confirm that output growth is affected by the level of value addition in economic activities and the productivity of human resources. We find that both the secondary sector’s contribution to gross regional development product (GRDP) and labour productivity contribute to the changes in overall provincial GRDP, but not the other way around. Such findings suggest that development in Indonesia’s economically challenged provinces would benefit greatly from expansion of appropriate manufacturing and value added activities, and more productive utilization of labour force in full employment situations

Asia Competitiveness Institute (ACI)

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Economic indicators in ASEAN

This project is about economic indicators in ASEAN.RP 48/9

Enhancing Singapore's Competitiveness: Some Fundamental Rethinking

Singapore's economy faces some major concerns resulting from intensified regional competition and the transformation from being investment-driven to innovation-driven. This paper examines (1) the accumulation and utilization of huge government surpluses in the past 40 years; (2) the country's total cost structure (e.g., land, wages, and regulatory costs); (3) the relationships among small and medium-sized enterprises, government-linked companies, and multinational corporations; and (4) the product and market diversification that is needed to mitigate the impacts on unemployment resulting from structural changes and the transition from manufacturing to services. Singapore's comparative and competitive advantages as a strategic hub of economic activities in Asia are examined and policy recommendations are put forward. Copyright (c) 2006 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.