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Foreign Investment, Growth and External Adjustment

Author

Listed:
  • Makin, Antony J.

    (Department of Accounting, Finance and Economics Griffith Business School Griffith University)

Abstract

This paper identifies foreign investment, broadly defined, as an additional source of income growth for open trading economies under conditions where physical capital is free to cross country borders. By extending the precepts of neoclassical theory, it shows how current account imbalances accompany real capital movements which arise to eliminate divergences between rates of return on foreign capital and its international rental cost. It also models the transitional dynamics of the international capital account of an open economy in response to shifts in foreign interest rates and changes in the domestic tax regime. The paper concludes that, in light of the theory, external account imbalances should not necessarily concern policymakers to the extent that they reflect real output enhancing capital flows.

Suggested Citation

  • Makin, Antony J., 1998. "Foreign Investment, Growth and External Adjustment," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 51(2), pages 229-238.
    • Handle: RePEc:ris:ecoint:0307
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    Citations

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    Cited by:

    1. Tony Makin, 1999. "The Great East Asian Capital Flow Reversal: Reasons, Responses and Ramifications," The World Economy, Wiley Blackwell, vol. 22(3), pages 407-419, May.

    More about this item

    Keywords

    Capital Account; Foreign Investment; Growth; Adjustment;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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