Capital flows are expected to be important in the process of economic growth for several reasons. One of them is their importance in relaxing the balance of payments constraints as envisaged by Thirlwall’s law, which states that when economic growth takes place, the level of imports also grows. Consequently, there is an increase in the export level or in the volume of capital inflows as imposed by the balance of payment constraints. The goal of the present paper is to investigate how capital flows have stimulated the Brazilian economy by means of Thirlwall’s model in the 1947-2000 period of time, taking into consideration that income elasticity of imports changes over time.
income elasticity of imports; capital flows; balance of payment constraint
