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The Three-GAP Theory of Investment and Growth

Author

Listed:
  • Ganti Subrahmanyam

    (National Institute of Bank Management, Pune)

  • Srinivasa Sundararajan

    (Citybank, Mumbai)

Abstract

In this paper a simple open economy macro economic model is developed to identify which of the gaps-saving-investment, trade, or fiscal-become the binding constraints in the adjustment process with growth in developing countries. Using results of comparative statistics, the stability conditions are derived to examine whether short-run effects are consistent with dynamic stability of the economy. A comparative statics analysis of a constrained economy with respect to all the binding gaps is examined and their policy implications are discussed in detail.

Suggested Citation

  • Ganti Subrahmanyam & Srinivasa Sundararajan, 1998. "The Three-GAP Theory of Investment and Growth," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 33(1), pages 31-51, January.
    • Handle: RePEc:dse:indecr:v:33:y:1998:i:1:p:31-51
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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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