PDF Ebook A Kaleckii-Keynes Model of World Trade, Finance, and Economic Growth
Borrowing from the insights of Michal Kalecki and John Maynard Keynes, this essay presents a h igh1y-aggregative mode 1 of the world economy that highlights the crucial role of international credit flows in the short to medium term. The Center nations (or the developed industrial nations) produce and export a capital good that is used in all sectors of the world economy while the Periphery (or the developing nations) produces an export good that is used only in productive sectors at the Center. The model also includes an international banking zone that allocates credit to the Center and the Per iphery—with a preference for lending to the Center. The model displays certain crucial features of international economic interdependence, while simultaneously revealing the decisive role of investment and income distribution at the Center in determining flows of world trade and finance. In addition, the model facilitates exploration of the consequences of the current massive levels of state indebtedness held by Third World countries as well as the contradictions of the current international "liquidity crisis."
This paper employs a highly aggregative, two-region model of the world economy to facilitate examination of certain fundamental issues involving prospects for economic advance by the non-industrial or industrializing nations (the Periphery).
These isisues are considered in the context of a particular structure of production and trade by the Periphery with the advanced industrial nations (the Center). The issues include the fol lowing :
(1) How can the recent massive build-up of external debt by the developing countries be explained?
(2) Must the Third World countries rely upon the old metropolitan powers for their engine of economic growth?
(3) Can the Third World countries serve as an engine of growth for the old metropolitan powers?
(4) What is the impact of fiscal and monetary policies pursued in either region on the overall performance of the world economy?
(5) Given the prevailing structure of the world economy, is it reasonable to expect the poorer nations of the world to "catch up" with the richer nations?
To pursue these matters» the model presented here highlights the important role of international credit flows in the chronological short to medium term. The model locates the dynamic forces driving worldwide growth and distribution at the Center through the use of a neo-Ri car dian cost-determined trade model with an international credit mechanism. Second» it permits the modelling of financial flows through an international credit mechanism not merely as automatic compensation for trade imbalances left uncleared by relative price movements, i.e., terms of trade variations inclusive of exchange rate variations, but instead as a result of shifts in the economic accumulation balance at the Center (savings, investments, etc.). The Center is "dominant" because of an asymmetry in the structure of Center-Periphery trade. The Center utilizes (or "consumes") its own export commodity, but the Periphery only finds a market for its export commodity at the Center. As a consequence, despite the global interdependence this model depicts, the characteristics of investment and income distribution at the Center are decisive in determining the flows of world trade and finance.
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PDF Ebook A Kaleckii-Keynes Model of World Trade, Finance, and Economic Growth
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