This paper presents an endogenous growth model which explicitly incorporates international capital mobility. Production depends on both physical and human capital. We work out the transition to the equilibrium ratio of human to physical capital when there is a deficit of the latter. We argue that this model represents the relevant economic forces for a typical developing country that has gone through structural changes towards better economic policies. The role of human capital relative abundance for subsequent growth and real exchange rate appreciation is emphasized. We argue that the real exchange rate is nothing but the relative price of human capital. The model predicts high and declining: output growth rates, current account deficits, local interest rates and real exchange rates. The model is carefully calibrated for the Chilean economy. For the next ten years we predict an average growth potential of 6.4%, an average investment rate of 28%, an average current account deficit of 3.4% of GDP and a 36% real appreciation for the whole period.
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Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.
Find related papers by JEL classification: O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Daniel Cohen & Jeffrey Sachs, 1991.
"Growth and External Debt Under Risk of Debt Repudiation,"
NBER Chapters,
in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 437-472
National Bureau of Economic Research, Inc.
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