Technology, capital flows and the balance of payments constraint in a structuralist north-south model

Abstract

This paper presents a North-South model which combines a demand curve for foreign exchange, based on the Keynesian Balance-of-Payments-constrained-growth theory, and a supply curve, based on the principle of increasing risks, which is nonlinear on the interest rate. The dynamics of the model describes a situation of external fragility in economies facing problems of international competitiveness, in which external desequilibrium recurrently puts a downward pressure on the rate of growth and favors exchange rate devaluation in Southern economies.