Brief Survey of the Literature

Abstract

There is a well-established body of literature on international economic growth. Let us begin with the Solow model, which is marked by a proportional saving function. Generally, perfect capital mobility is assumed here. Domar (1950) is an early forerunner in dynamic theory. He deals with the effect of foreign investment on the balance of payments. The framework is given by a simple dynamic model of a small open economy. He argues that a capital outflow generates an interest inflow. Now if the foreign interest rate exceeds the growth rate, then, in the steady state, the interest inflow will be larger than the capital outflow. Accordingly, the country in question will be a net importer of commodities. Borts (1964) considers a small open economy with an ad hoc investment function. There are both traded and nontraded goods, so the terms of trade enter the scene. He concentrates on the process of adjustment set in motion by an increase in the world demand and world price of the traded good. He demonstrates that, as a response, output grows faster than labour input. Amano (1965), too, regards a small open economy. The focus is on the transitional dynamics of introducing capital mobility. As a result, national income develops more rapidly than labour. The paper treats only dynamics, and not the steady state. Negishi (1965), in a very short mathematical paper, has two countries with different saving rates but equal rates of labour growth. He shows that, in order to reach the optimum, the government should levy a tax or grant a subsidy. Hamada (1966), in a rather extensive paper, studies two countries with identical technologies. He distinguishes several cases, e.g. different saving rates or different rates of labour growth. He proves the existence of two steady states, one of them being stable, the other unstable.KeywordsSaving RateCapital MobilitySmall Open EconomyNontraded GoodInfinite HorizonThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.