Investment Accelerations: The Role of the Real Exchange Rate Among Other Factors

19  April 2018    4:00 pm CEST

Prof. Arslan Razmi, University of Massachusetts at Amherst


wiiw, Rahlgasse 3, 1060 Vienna, library (2nd floor)


Existing empirical studies have mainly focused on determinants of average investment levels. We investigate instead episodes of accelerated capital stock growth that last eight years or longer. We find that episodes are relatively common, even in low growth regions, but more so in middle income and Asian countries. After identifying 175 such episodes between 1950-2014, we employ probit analysis to explore their characteristics. Turning points in investment tend to be preceded by undervalued real exchange rates, macroeconomic stability, and net capital outflows (especially portfolio outflows). We also find strong evidence for a negative correlation with the capital to output ratio and per capita GDP, and a positive correlation with a human capital index. Investment surges appear to be associated with structural change in the economy and the trade balance.

Arslan Razmi is a Professor at the University of Massachusetts at Amherst where he teaches graduate and undergraduate courses in international trade, macroeconomics, mathematical economics, and international finance.  His research falls broadly in the areas of open economy macroeconomics, international trade, and development.  Other interests include political economy and the history of economic thought. He is currently a Fulbright Scholar based at the University of Montenengro.
Arslan’s recent work, which has focused on the nature of export-led growth, the relationship between income distribution and macroeconomic outcomes, and the real exchange rate as a tool of development policy, borrows from diverse streams of economic theory including neoclassical, structuralist, and Post Keynesian approaches. Other ongoing research includes an investigation of the balance of payments constraint on the growth of developing economies and the distributional consequences of trade liberalization.  His research has recently been published in the Cambridge Journal of Economics, Oxford Economic Papers, Metroeconomica, Journal of Development Studies, Weltwirtschafliches Archiv, and Structural Change and Economic Development.  More details can be accessed at: