Essays in Honour of J. George Waardenburg
Edited by Servaas Storm and C. W.M. Naastepad
Chapter 7: An analysis of the impact of short-term capital flows on income in developing countries
7. An analysis of the impact of shortterm capital ﬂows on income in developing economies Amit Bhaduri Keynes’ as well as Kalecki’s analysis of the problem of income determination through aggregate demand was set, almost self-consciously, in the context of a closed economy. The generalization of this analysis to an economy open to foreign trade through various ramiﬁcations of the ‘foreign trade multiplier’ has one common thread running through it. Imports, like savings, are assumed to be induced by income. Thus, with both savings and imports as increasing functions of income, the eﬀect of the foreign trade multiplier on aggregate demand is derived in terms of the saving and import propensities as the two sources of leakage from demand. With capital inﬂow in the liberalized regime of trade and ﬁnance in a developing country, the problem needs to be viewed somewhat diﬀerently. Capital inﬂow is an autonomous variable decided by private traders in the international foreign exchange market. In many situations relevant to developing countries, we may plausibly postulate that higher imports, and therefore a higher trade deﬁcit, are not only sustained but driven by the volume of autonomous capital inﬂows into a country. Thus, in contrast to the more traditional Keynesian model, imports may be assumed to be induced not by income but by capital inﬂow. Its consequence is evident. A higher capital inﬂow in a liberalized trade regime permits sustaining a higher trade deﬁcit, which in turn has...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.