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The concept of regional capital autonomy — A critique

Khambadkone, Mohan

Abstract The purpose of this note is to critically examine Charles Leven's concept of regional capital autonomy, which he defines as a situation in which a region is assured of attracting nonlocal investible funds to at least offset any outward movementof local savings, as a meaningful analytical tool. 2 Section II argues that in the context of interregional flow of funds, goods and services any lack of capital autonomy, which will manifest in the form of differential rate of return on investments among regions, will have a tendency of correcting itself under competitive equilibrium conditions. It is pointed out that flow of funds are sensitive not only to changes in the interregional rate of return but also to variations in the liquidity functions of the regions and that any index of capital autonomy defined only in terms of the magnitude of the impact on the real investment of a region would detract from its usefulness as an analytical tool. Further, it is shown that, other things being given, the index measuring the regional capital autonomy could conceivably be independent of either changes inthe outflow of local savings or inflow of foreign savings. Section III summarizes some of Leven's specific equations of regional accounts as a prelude to his derivation of indexes defining capital autonomy. In addition, it shows that some of the key equations are definitionally invalid and an attempt is made to reinterpret these so as to render them meaningful. The last section attempts to demonstrate that both the indexes of regional capital autonomy as defined by Leven have fatal drawbacks irrespective of whether the symbols of the key equations are assigned meanings as originally intended or as reinterpreted herein.