Growth with imported capital goods, limited export demand and foreign debt

Abstract

In this paper the implications of introducing imported inputs and elasticities of export demand into the neoclassical growth model for the analysis of long-run growth are shown. Rates of growth of per capita consumption depend not only on the rates of interest and time preference but also on the terms of trade and will in general not be equalized across countries through international trade and capital movements. Under low interest rates and strong world economic growth per capita income, real wages, capital-labor ratio and the terms of trade grow faster if income elasticities of exports and the growth rate of world income are higher. If creditors ration debt to the level of the capital stock classical growth results are obtained.