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FOREIGN CAPITAL AND ECONOMIC GROWTH
Author(s) -
PAUL SATYA,
TRUONG CONG N.
Publication year - 2004
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2004.00237.x
Subject(s) - capital deepening , capital outflow , depreciation (economics) , economics , capital (architecture) , capital intensity , capital consumption allowance , physical capital , fixed capital , monetary economics , capital accumulation , foreign capital , capital formation , financial capital , foreign direct investment , market economy , macroeconomics , human capital , archaeology , history
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.