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Capital Movements, Economic Growth and Investment in Developing Countries

In: Foreign Capital in Developing Economies

Author

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  • Stefano Manzocchi

    (University of Perugia)

Abstract

The neoclassical growth model, in both its basic and its augmented version, provides an optimistic view of the consequences of capital movements for a developing economy: as foreign inflows are used to finance investment in physical capital, opening to capital mobility should make a developing country (DC) an attractive location for international investors (provided it is endowed with, and will accumulate, enough human capital according to the augmented model with partial mobility). Consequently, the main predictions of the neoclassical theory are that: First, the integration in international capital markets will foster the speed of convergence to the steady state and therefore raise the growth rate for those developing economies that become net capital importers. Second, the larger the (per capita) inflow of net foreign capital, the higher the ex ante marginal product of capital hence the more the underlying fundamentals of a DC are conducive to economic growth (see Section 4.1).

Suggested Citation

  • Stefano Manzocchi, 1999. "Capital Movements, Economic Growth and Investment in Developing Countries," Palgrave Macmillan Books, in: Foreign Capital in Developing Economies, chapter 7, pages 133-152, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-27620-2_7
    DOI: 10.1007/978-1-349-27620-2_7
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