The Three-GAP Theory of Investment and Growth

Ganti Subrahmanyam and Srinivasa Sundararajan
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Ganti Subrahmanyam: National Institute of Bank Management, Pune
Srinivasa Sundararajan: Citybank, Mumbai

Indian Economic Review, 1998, vol. 33, issue 1, 31-51

Abstract: In this paper a simple open economy macro economic model is developed to identify which of the gaps-saving-investment, trade, or fiscal-become the binding constraints in the adjustment process with growth in developing countries. Using results of comparative statistics, the stability conditions are derived to examine whether short-run effects are consistent with dynamic stability of the economy. A comparative statics analysis of a constrained economy with respect to all the binding gaps is examined and their policy implications are discussed in detail.

JEL-codes: E6 F4 (search for similar items in EconPapers)
Date: 1998
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