Why Foreign Savings Fail to Cause Growth Luiz Carlos Bresser-Pereira, Paulo Gala

The present paper is a formalization of the critique of the growth with foreign savings strategy, advocated as a deliberate strategy of growth since the 90’s. It argues that for medium income capital-poor countries, current account deficits (foreign savings), financed either by loans or by foreign direct investments, will not usually increase the rate of capital accumulation or will have little impact on it in so far as current account deficits are, among other factors, associated with appreciated exchange rates. Other than in exceptional cases, foreign savings will only result in increased consumption and in increased financial or equity indebtedness without an increase in the country’s ability to invest and export.

cause_growth (Download the full text in PDF format)