Capital Productivity and Foreign Investments in the Bipolar Economic Growth Model – Convergence Analysis

Abstract

In this article, the authors have been constructing a bipolar economic growth model, whose main assumptions are: investment fl ows depend on the ratio of capital productivity in two types of economies – conventionally called the rich and the poor, and the share of foreign investments in the economy of its total investment is described by logit function and depends on the ratio of capital productivity in both types of economies. The main purpose of this paper, is the empirical verifi cation of the bipolar economic growth model and its assumptions, by analyzing the impact of domestic and foreign investments on the long-term economic growth balance. The bipolar economic growth model is based on the Solow’s neoclassical growth model and its subsequent extensions. The bipolar economic growth model enters into a broad current investigation of the causes of polarization processes of economic development. Numerical simulations allows an estimate of the long-term relationship between the rich and poor economies, in regard to the capital-labour ratio, labor effi ciency and capital productivity. The simulations also allow the calculation of the time horizon over which the poor economy would equal the rich economy in terms of the level of macroeconomic variables analyzed.