Capital-theoretic Approaches to the External Accounts

Abstract

In broad terms, the traditional approaches to the external accounts outlined in the previous chapter, particularly the elasticities, absorption, and MF approaches stress expenditure and competitiveness as the chief determinants of the current account and restrict attention to the short-run implications of changing net exports of goods and services. Though the capital account plays a role in the MF approach, financial capital flows are not related to the real capital stock and hence the production side of the economy in any direct way. Indeed, a common factor uniting the earlier approaches is the general neglect of capital theory and the notion that there may be macroeconomic welfare gains from international trade in saving.