Purchasing Power Parity, Unequal Exchange and Foreign Direct Investment

Purchasing Power Parity, Unequal Exchange and Foreign Direct Investment Ranjit Sau The IMF, the UN and the World Bank are using the PPP doctrine. This paper shows that by the PPP criterion, the currencies of developing countries are undervalued, not overvalued as the conventional wisdom maintains. It proves that trade with such undervalued currency implies an adverse unequal exchange. For foreign capital now there are two channels of profit: production, and trade. Gains from unequal exchange deters foreign direct investment.