CB: Is this circumstance of capital concentration in rich countries an equilibrium ? Is it likely to be punctuated by revolutions eventually ?
>>> jbdelong at uclink.berkeley.edu 08/17/01 12:30PM >>>
The world structure of relative prices is stacked against them. Because current exchange rates for poor countries are far below purchasing-power-parities, it requires a *huge* proportional sacrifice in terms of current consumption to produce even a small domestically-financed investment effort.
This is one of the biggest of the vicious circles that keeps poor countries poor.
The hope was that opening up international capital markets would make it easier for poor countries to finance industrialization. But as we sit here and look at the United States's $250 billion plus annual trade deficit, it seems that something has gone very wrong. In the aggregate, capital is not flowing from rich countries to poor countries, but from everywhere else to the United States.
There are a number of theories suggesting that the long-run dominant tendency is for open capital flows to cascade from rich to poor, and that this tendency has been masked over the past two decades by temporary factors. But with each year that passes, such theories become less and less credible...
Brad DeLong