Capital flow, interest rate differential, and balance of payments constraint growth model: a theoretical perspective

Abstract:

This paper aims to contribute to the debate on long-term economic growth, clarifying aspects of the balance of payments constraint growth models. We formalized a theoretical model in which foreign direct investment is distinguished from portfolio investment in determining the external constraint growth rate, so that part of the attraction of foreign capital results from the differential rates of domestic and foreign interest and a risk premium.

Keywords:
economic growth; balance of payments constraint; Thirlwall's Law