Growth and Distribution in an Open Economy

J. S. Metcalfe and Ian Steedman

Chapter 16 in Fundamental Issues in Trade Theory, 1979, pp 201-227 from Palgrave Macmillan

Abstract: Abstract Several of the previous essays in this book have in common the assumptions of an arbitrarily fixed rate of growth and rate of profits, the links between the two magnitudes remaining unspecified. In this final essay our purpose is to begin to bridge the gap between growth and distribution with an explicit analysis of accumulation in an open economy. In so doing, we shall develop relations between the wage-profit and consumption-growth frontiers in an open economy and between the volume of net foreign lending and the distribution of domestic product between wages and profits. The distributional relations we develop provide a basis, we would argue, for a macro economic alternative to the H-O-S theory of income distribution in open economies. The essay is divided into four main parts. Part I develops an analysis of the wage-profit and consumption-growth frontiers in an open economy, to demonstrate their dependence on the terms of trade and the influence of the trade balance on the consumption-growth frontier. Part II is concerned with the external constraint for a small open economy in steady growth and explores the links between the volume of foreign lending and the trade balance. Part III introduces this external constraint into the Harrod growth scheme and shows how a value of the trade balance can be found which reconciles natural and warranted growth rates, despite the assumptions of a constant saving:income ratio and a constant capital: output ratio.

Keywords: Open Economy; Real Exchange Rate; Real Wage; Trade Balance; Foreign Asset (search for similar items in EconPapers)
Date: 1979
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DOI: 10.1007/978-1-349-04378-1_16

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