This paper develops a growth model (based on the Keynesian literature of Balance-of-Payments-constrained growth and on the Minskyan concept of financial fragility) aimed at describing some stylized facts of the current economic situation in Latin America. In particular, it discusses why the positive trend in capital inflows of the last decade has recently suffered a critical setback. The traditional mechanisms devised for taming capital flights by means of increasing interest rates have proved to be inefficient and could not avoid slower growth in the region. The model shows that in a context of increasing risk of default, a country cannot grow at a rate systematically higher than that which keeps stable the current account deficit/GDP ratio, as financial fragility grows steadily in such conditions.
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Article provided by Instituto de Economia, Universidade Estadual de Campinas (UNICAMP) in its journal Revista Economia e Sociedade.
Find related papers by JEL classification: F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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