Development with Limited and Unlimited Supplies of Capital

Ali A Bolbol and Leslie Young

The Manchester School of Economic & Social Studies, 1992, vol. 60, issue 3, 307-16

Abstract: The authors consider a country with "unlimited supplies of capital" that seeks to accelerate economic development by targeting a return on development projects that is less than that on world financial markets. Labor arrives from abroad in response to wage differentials. The adjustment path toward the higher equilibrium capital stock can be cyclical, with the wage and quantity of labor continually overshooting their equilibrium values. The authors also consider the case where development capital is limited, being rationed by targeting a higher return when the demand for capital is high. This ostensibly stabilizing measure, in fact, exacerbates fluctuations in the adjustment path. Copyright 1992 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1992
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