ECON 372 Lecture Notes - Lecture 8: Autarky
4 Apr 2018
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According to bordo and meisser, foreign capital inflow is the process by which other governments or private enterprises invest funds into another nation. This capital inflow is directed to three different sectors: government spending, railways, and private (non-railways) expenditure. In order to measure these effects, the authors adapted the adrl model to capture both the long and short-run trends. During the period of 1880-1913, the model showed that capital inflow had little effect on income per capita in the short term. In the long-run, however, there (cid:449)as a (cid:862)positi(cid:448)e a(cid:374)d sig(cid:374)ifi(cid:272)a(cid:374)t relatio(cid:374)ship (cid:271)et(cid:449)ee(cid:374) i(cid:374)(cid:272)o(cid:373)e a(cid:374)d (cid:272)apital i(cid:374)flo(cid:449)s(cid:863) (bordo. Financial crises are more likely to occur in a globalized economy due to factors such as volatile flows of capital, depreciations in the exchange rate, and deterioration in monitoring (bordo & meisser, p. 82). During a financial crisis, income per capita has been shown to drop significantly.
