Capital Mobility, the Real Exchange Rate, and the Rate of Return to Capital in the Presence of Non-Traded Goods

23 Pages Posted: 29 Jan 2001

See all articles by Konstantine Gatsios

Konstantine Gatsios

Athens University of Economics and Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: December 2000

Abstract

This Paper constructs a general equilibrium trade model of a small open economy producing an exported good, an imported good and a non-traded good by using two or more factors of production, one of which, namely capital, is imperfectly internationally mobile. Within this framework, it is shown that an exogenous capital inflow may lead to a depreciation of the real exchange rate, and to an increase in both the nominal and the real rate of return to capital. For these paradoxical results to occur it is necessary that the non-traded good is capital intensive.

Keywords: Capital mobility, nominal and real rate of return to capital, real exchange rate

JEL Classification: F10, F20

Suggested Citation

Gatsios, Konstantine, Capital Mobility, the Real Exchange Rate, and the Rate of Return to Capital in the Presence of Non-Traded Goods (December 2000). Available at SSRN: https://ssrn.com/abstract=258076

Konstantine Gatsios (Contact Author)

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+301 820 3179 (Phone)
+301 820 3301 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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