Economic growth, investment, and exchange rate changes in a poor-capital economy

Article Abstract:

Real variables were noted to be indifferent to changes in the exchange rate. A simple general equilibrium model of a small, open economy where investment is composed of capital imports revealed the inexistence of common trends between output growth, investment growth and exchange rate changes. It was established that the difficulty of determining real effects in an interest-free ecoonomy can be attributed to incapability of financial markets to provide an equity-based profit/loss sharing system that will promote an alternative incentive system for higher investment and higher economic growth.

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Economic growth, investment, and exchange rate changes in a poor-capital economy

Article Abstract:

Real effects cannot be easily achieved in an interest-free economy when there is no sufficient activity in financial markets to provide an equity-based profit/loss sharing system that will promote an alternative incentive system for increased investment and economic growth. This was gleaned from the results of exchange rate changes in a simple general equilibrium model of a small, open economy where investment comprises mostly capital imports. Cointegration results also affirm that exchange rate changes do not impact on real variables.

Analysis, Prices and rates, Foreign exchange rates

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Investment under profit-sharing contracts: the adverse selection case

Article Abstract:

Overinvestment tends to occur under profit-and- loss sharing contracts in which asymmetric information environment exists. The equilibrium level of investment surpasses the first best level when all projects provide the same expected returns but vary in their probabilities of success. Provision of support to competitive equilibrium can be provided by a government tax (zakat) policy.

Profit sharing

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