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Capital Mobility, the Real Exchange Rate, and the Rate of Return to Capital in the Presence of Non-Traded Goods

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  • Gatsios, Konstantine

Abstract

This Paper constructs a general equilibrium trade model of a small open economy producing an exported good, an imported good and a non-traded good by using two or more factors of production, one of which, namely capital, is imperfectly internationally mobile. Within this framework, it is shown that an exogenous capital inflow may lead to a depreciation of the real exchange rate, and to an increase in both the nominal and the real rate of return to capital. For these paradoxical results to occur it is necessary that the non-traded good is capital intensive.

Suggested Citation

  • Gatsios, Konstantine, 2000. "Capital Mobility, the Real Exchange Rate, and the Rate of Return to Capital in the Presence of Non-Traded Goods," CEPR Discussion Papers 2644, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2644
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    More about this item

    Keywords

    Capital mobility; Real exchange rate; Nominal and real rate of return to capital;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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