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Foreign Capital And Economic Growth

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  • SATYA PAUL
  • CONG N. TRUONG

Abstract

This paper examines the economic implications of institutional arrangements by which foreign investors are required to reinvest a certain percentage of their capital within the host country. Our analysis shows that foreign capital inflow can produce long‐lasting economic benefits to the host country only when the foreign capital reinvestment rate is sufficiently greater than the host country's saving rate. In this case, the economy evolves into a unique steady state equilibrium, which is also asymptotically stable. The paper also presents several comparative static results regarding the responses of steady state capital‐labour ratio and the proportion of foreign capital in total capital to changes in the population growth rate, the rate of capital depreciation, the host country's saving rate and the foreign capital reinvestment rate.

Suggested Citation

  • Satya Paul & Cong N. Truong, 2004. "Foreign Capital And Economic Growth," Australian Economic Papers, Wiley Blackwell, vol. 43(4), pages 396-405, December.
    • Handle: RePEc:bla:ausecp:v:43:y:2004:i:4:p:396-405
    DOI: 10.1111/j.1467-8454.2004.00237.x
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    Cited by:

    1. Quan Dong & Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2015. "Restrictions on Foreign Investments and the Relocation of Firms," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 250-265, December.
    2. Sushanta Mallick & Tomoe Moore, 2008. "Foreign Capital in a Growth Model," Review of Development Economics, Wiley Blackwell, vol. 12(1), pages 143-159, February.

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