Summary
This paper examines the factors which determine the volume of consumption per capita in a small open economy in the long run. The analysis is based on a neoclassical model. It is proved that-in general — Phelps' ‘golden rule of accumulation’ does not hold for an open economy. This conclusion follows from the decline in the terms of trade, which is generated in an open economy by an increase in the share of investment. The influence of labour supply and world expenditure on the consumption per capita also depend heavily on the induced change in the terms of trade. The analytical results of the model are illustrated by means of a few numerical examples.
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References
Klundert, Theo van de, ‘Distribution, Taxation and Employment in an Open Economy,’De Economist, 130 (1982), pp. 9–37.
Phelps, E., ‘The Golden Rule of Accumulation: A Fable for Growthmen,’American Economic Review, 51 (1961), pp. 638–43.
Schouten, D.B.J.,Macht en wanorde, Leiden, 1980 (Dutch).
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This paper is written within the framework of the research program ‘Possibilities and Limitations of National and International Economic Policy,’ code K.H.T. XIII-85-44.
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Donders, J.H.M. The golden rule of accumulation and the open economy. De Economist 133, 545–557 (1985). https://doi.org/10.1007/BF01675840
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DOI: https://doi.org/10.1007/BF01675840