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Foreign Direct Investment and Growth Convergence in a North-South Framework

Author

Listed:
  • Vinicius Curti Cicero
  • Gilberto Tadeu Lima
Abstract
This paper develops a general extended version of the balance-of-payments constrained growth model that takes into consideration some often ignored aspects of growth in open economies - namely, the importance of capital flows in the long run, terms of trade changes and trade and payments interdependence among regions. Furthermore, this paper incorporates Thirlwall's analysis into a North-South model that takes into account four intrinsically connected channels through which FDI inflows can affect the productive structure of Southern region - capital accumulation, balance-of-payments components, technological change and income distribution - finding that it still explains uneven development, although reducing the distance between regions by easing the external restriction, that is indicate a more even development path. In addition, this article presents an empirical exercise that, although not conclusive when considering the income elasticities of import ratio, points to a quite relevant result: the non-consideration of income distribution effects in the import functions represents not only the omission of a relevant variable on econometric estimations but, mainly, the omission of an important theoretical channel to understand growth in open economies.

Suggested Citation

  • Vinicius Curti Cicero & Gilberto Tadeu Lima, 2020. "Foreign Direct Investment and Growth Convergence in a North-South Framework," Working Papers, Department of Economics 2020_04, University of São Paulo (FEA-USP), revised 18 Jun 2020.
    • Handle: RePEc:spa:wpaper:2020wpecon4
    as

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    File URL: http://www.repec.eae.fea.usp.br/documentos/Cicero_Lima_04WP.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Foreign direct investment; Economic growth; Uneven development; North-South relations; Balance-of-Payments constraint; Functional distribution of income;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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