Capacity Utilization, Foreign Portfolio Investment and International Debts and Deficits

Harilaos Mertzanis

Review of Political Economy, 2000, vol. 12, issue 2, 207-218

Abstract: This paper develops a long-run equilibrium growth model, in the tradition of Keynes, Kalecki and Steindl, involving international capital flows between a debtor and a creditor country, and in which capacity utilization is variable. This latter assumption implies that the shares of savings by capitalists and workers will vary with capacity utilization. Profit rates will also vary with capacity utilization rates, so that the establishment of a common warranted rate of growth requires that the rates of profit in the creditor and the debtor countries must vary inversely. The long-run equilibrium shares of ownership of the two stocks of capital must therefore vary as the utilization rates vary. Taking the international interest rate as given, steady growth in each country at near full employment is shown to be accommodated, to some extent, through variations in the degree of capacity utilization. Even if income distribution remains unchanged, the variability of capacity utilization allows the existence of a range of growth rates consistent with the long-run equilibrium conditions of the model.

Date: 2000
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DOI: 10.1080/095382500406512

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