Lucas paradox in the light of neoclassical theory
Journal Title: Central European Review of Economics and Finance - Year 2016, Vol 11, Issue 1
Abstract
In their analyses devoted to the directions of international capital flows, economists dealing with the subject often make references to conclusions reached by R. Lucas Jr, i.e., to the so called Lucas paradox. In literature, Lucas paradox provides the starting point for considerations on how neoclassical model works when it comes to the directions and volume of capital flowing among countries in modern global economy. This paper aims at discussing the rationale behind the study conducted by R. Lucas Jr and, consequently, the justification for his conclusion. Lucas paradox is considered in two approaches: classical, i.e., consistent with conclusions drawn by R. Lucas: capital flows between countries in amounts smaller than suggested by differences in marginal products of capital in individual countries and the flow does not equalise them; and contemporary: directions of capital flows in global economy are not consistent with those delineated by the neoclassical model, capital flows from poor (developing) countries to rich (developed) ones. Taking account of neoclassical model assumptions, in both approaches to Lucas paradox drawing "hard" conclusions with respect to directions of capital flows in contemporary economy based on quoted studies does not seem justified.(original abstract)
Authors and Affiliations
Małgorzata Janicka
Keywords
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