Review of Keynesian Economics

The rate of profit and balance-of-payments-constrained economic growth: the dynamic model for a small and open economy

Naphon Phumma * *

Keywords: profit rate, Thirlwall’s law, balance of payments, small and open economy


This paper attempts to emphasize the role of the rate of profit on the balance of payments by integrating the Marxian rate of profit with the post-Keynesian balance-of-payments-constrained growth model (Thirlwall’s Law). In this regard, the domestic rate of profit determines the direction of foreign capital, while foreign capital, in turn, influences the rate of profit. The dynamic model between the level of GDP, derived from the extended Thirlwall’s law (Thirlwall and Hussain 1982), and the rate of profit is thus created. The theoretical result obtained from the model is compatible with the stylized facts of many small and open economies that experienced rapid economic growth and balance of payments crises from the mobility of foreign capital.

Author Notes

The paper is a part of my dissertation submitted to the Department of Economics at the University of Utah. I would like to thank Dr Minqi Li and Dr Rudi von Arnim for their advice. I would also thank two anonymous referees for their constructive comments. All errors remain mine.

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