Re: PKT digest 1492

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

On Tue, 29 Jul 1997 11:30:35 +0200, "Per Gunnar Berglund"
wrote:

>...
>Lynn Turgeon wrote:
>...
>> What about less developed countries? Wouldn't they be expected to
>> require higher real interest rates?

>I do not know very much about LDC economy, and I do not wish to be
>presumptuous. But basically, I would think that low capital costs is good
>for any economy, LDC or industrial. Low capital costs are, of course,
>brought about by low real interest rates.

        If by less developed, we imply that production of the most effective
forms of productive equipment in the country cannot be produced in the
country, it does not necessarily hold that low capital costs to the
individual producer are necessarily good -- in particular, low capital
costs may lead to a dependence upon imports that the national economy
cannot afford.  This is not a problem that arises if we assume that the
capital goods are being produced domestically.  Perversely, in certain
contexts, low capital costs can lead to an economic infrastructure being
put into place that requires imported inputs for maintenance that at some
later point in time the national economy can't or won't afford to import.
So that the country would have been better off with less "capital" equipment,
that it could afford to maintain.

Virtually

Bruce McFarling, Newcastle
ecbm@xxxxxxxxxxxxxxxxxxx