International Trade And Income Formation: A Developing Country’s Perspective

Abstract

Using OLS technique, this paper estimates the role of the international sector of developing economies on the monetary mechanism and economic growth.  Results obtained show that significant variation in money stock is explained by changes in exports, capital inflow, and the balance of payments.  However volatility in these variables, due to the narrow range of exports and international capital market conditions for such economies, present real limits to growth, and cautions against indiscriminate use of bank credit creation.