Most developing countries are small open economies; they have quite limited absorptive capacity for new physical and human capital; face credit constraints in international financial markets; and, last but not least, they are usually far from the steady state.

Thus, transitional dynamics starting from actual initial conditions matters, and matters a lot. To account for these features in the simplest way, we develop a small intertemporal model suitable for growth analysis in developing countries.

We discuss each model equation, variable and parameter from an empirical point of view; we analyze the model’s main dynamic features; and we present illustrative simulations for a “typical” developing economy.

Authors: P. Ruben Mercado, UNDP Argentina, and Martin Cicowiez, UNLP.