Trade and Permanent Growth with Domestic and Foreign Capital Goods, and International Capital Movements

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

Please see the comments and suggestions in the attachment.

Comments for author File: Comments.pdf

Author Response

Please see the attachment.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

General Assessment
The manuscript addresses an important and intellectually demanding question at the intersection of international trade, capital accumulation, and long-run growth.  The model is mathematically rigorous and carefully constructed, and the derivation of multiple steady states—particularly those associated with different debt regimes—is one of the paper’s strongest and most original contributions. The attempt to link the theoretical results to empirical dynamics through a VAR analysis further enhances the paper’s potential relevance.
However, despite these strengths, the manuscript requires substantial revisions to improve its conceptual clarity, economic intuition, and positioning within the broader growth literature. In its current form, the exposition is excessively technical, and key contributions are not sufficiently highlighted or interpreted in economic and policy-relevant terms. Clarifying the research question, strengthening the motivation, and improving the readability of the model exposition would significantly enhance the paper’s impact and accessibility.
Specific Comments
1. Introduction
The introduction provides a thorough and knowledgeable overview of trade–growth mechanisms across different strands of the literature. However, it is overly literature-driven and does not articulate a clear and sharply defined research question early on. As a result, the reader may struggle to understand the paper’s central contribution until relatively late in the text.
The transition from classical trade theory to the Bardhan–Lewis framework is technically correct, but it appears conceptually abrupt. The introduction would benefit from a clearer explanation of why the Bardhan–Lewis model provides the most appropriate analytical foundation for the questions addressed in this paper.
The motivation for reintroducing domestic capital goods is not sufficiently emphasized. At present, this extension risks being perceived as a technical refinement rather than as a central conceptual innovation. The authors should more explicitly explain why excluding domestic capital goods is limiting and how their inclusion fundamentally changes the trade–growth mechanism.
The paper does not clearly specify the literature gap it fills relative to:
- balance-of-payments-constrained growth models,
- endogenous growth models with trade,
- and more recent open-economy growth frameworks.
A clearer positioning vis-à-vis these approaches would help readers understand what is genuinely new in this contribution and why it matters.

2. Methodology and Model Structure
The mathematical structure of the model is rigorous and internally consistent. Nevertheless, the exposition is extremely dense, making it difficult for readers to grasp the economic logic before encountering long sequences of derivations.
Several key assumptions—such as unit elasticity of substitution between domestic and foreign capital goods, the absence of rigidities, and the specification of savings behavior—are stated formally but not sufficiently justified in economic terms. More discussion is needed to clarify why these assumptions are appropriate for the research question at hand and what is gained (and potentially lost) by adopting them.
The role of foreign debt lacks conceptual clarity. At different points in the analysis, debt appears alternately as:
- a financing mechanism for imported capital goods, and
- a state variable driving instability and multiple steady states.
These two roles are not clearly separated or discussed, which creates ambiguity about the economic interpretation of debt dynamics in the model.
Clarity issue:
The reader is often confronted with lengthy algebraic derivations before being informed of their economic meaning or relevance. This significantly reduces the accessibility of the paper, even for a technically trained audience.

Suggestion:
Introduce short paragraphs providing economic intuition after major derivations—particularly following the characterization of steady states and long-run growth rates—to guide the reader through the logic of the model.

3. Steady States and Dynamics
The derivation of multiple steady states is technically impressive and represents one of the paper’s most valuable contributions.
However, the economic interpretation of the different steady states—high-debt, low-debt, and negative-debt regimes—is underdeveloped. The analysis remains largely at a formal level, without sufficiently explaining what these regimes represent in real economic terms.
The paper does not adequately address why the existence of these multiple steady states should matter to policymakers or development economists. For instance, it remains unclear how these regimes relate to issues such as external vulnerability, development traps, or macroeconomic stability.
A more explicit discussion of the policy and development implications of these steady states would greatly strengthen the relevance and impact of the paper.

Thank you!

Author Response

Please see the attachment.

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

Comments and Suggestions for Authors

The necessary changes have been made by the authors in response to the previous comments. The manuscript has been carefully revised and now meets the journal’s requirements.

I believe that the issues raised during the review process have been adequately addressed. Therefore, in my opinion, the manuscript is suitable for publication in its current form.