Balance of Payments Constrained Growth Models

2014 ◽  
Author(s):  
Anthony Philip Thirlwall
Keyword(s):  
Growth Models ◽  
Balance Of Payments

scholarly journals Real exchange rate and structural change in a Kaldorian balance of payments constrained growth model

2018 ◽  
Vol 38 (1) ◽  
pp. 48-69
Author(s):  
BERNARDO MATTOS SANTANA ◽  
JOSÉ LUIS OREIRO
Keyword(s):  
Exchange Rate ◽  
Structural Change ◽  
Real Exchange Rate ◽  
Growth Model ◽  
Manufacturing Industry ◽  
Growth Models ◽  
Dynamic Properties ◽  
Output Growth ◽  
Balance Of Payments ◽  
Over Time

ABSTRACT The objective of the present article is to develop a Kaldorian Growth model that (i) had a balance of payments constraint, in order to eliminate the inconsistency of balance of payments growth models; and (ii) defines a precise mechanism by which the level of real exchange rate can affect long-term growth. An important innovation introduced in the model is the idea that Kaldor-Verdoorn coefficient - that measures the sensibility of growth rate of labor productivity to output growth - depends on the share of manufacturing output on GDP. This hypothesis allowed us to introduce the possibility of structural change, defined as a dynamic process by which the share of manufacturing industry on real output could change over time. In this case, it will be possible to analyze the dynamic properties of the model either in the case where productive structure is kept constant (case with no structural change), as in the case where it evolves over time as a result of some economic process (case with structural change).

scholarly journals A reconciliation proposal of demand-driven growth models in open economies

2017 ◽  
Vol 44 (2) ◽  
pp. 226-244 ◽  
Author(s):  
Rafael Saulo Marques Ribeiro ◽  
John S.L. McCombie ◽  
Gilberto Tadeu Lima
Keyword(s):  
Exchange Rate ◽  
Income Distribution ◽  
Growth Model ◽  
Growth Models ◽  
Open Economies ◽  
Balance Of Payments ◽  
Testable Hypothesis ◽  
Currency Devaluation ◽  
Content Type ◽  
Short Run

Purpose The purpose of this paper is to contribute to the literature on demand-driven Keynesian growth in open economies by developing a formal model that combines Dixon and Thirlwall’s (1975) export-led growth model and Thirlwall’s (1979) balance-of-payments constrained growth model into a more general specification. Then, based on the model developed in this paper, the authors analyse more broadly some important issues concerning the net impact of currency depreciation on the short-run growth. Design/methodology/approach The authors build upon Dixon and Thirlwall’s (1975) export-led growth model and Thirlwall’s (1979) balance-of-payments constrained growth model in order to develop the theoretical framework. The authors also run numerical simulations to illustrate the net impact of devaluation on the short-run growth rate in different scenarios. Findings The authors demonstrate that the net impact of currency devaluation on growth can go either way, depending on some structural conditions such as the average share of imported intermediate inputs in prime costs of domestic firms and the institutional capacity of trade unions to set nominal wages through the bargaining process. The model also shows that the effectiveness of a competitive real exchange rate to promote growth is higher in countries where the share of labour in domestic income is also higher. Research limitations/implications This paper provides a coherent formal starting-point for further theoretical developments on the interrelatedness between currency devaluation, income distribution and growth. These findings provide empirically testable hypothesis for future research. Originality/value The present study proposes an alternative formal solution for the theoretical problem of imposing a balance-of-payments constraint on the process of cumulative causation often incorporated in Kaldorian growth models. In terms of policy, the framework sheds further light on the relevance of income distribution and the labour market institutional framework for the dynamics of the exchange rate pass-through mechanism and allows us to map out related conditions under which currency devaluation can promote growth.

Thirlwall's law, external debt sustainability, and the balance-of-payments-constrained level and growth rates of output

2019 ◽  
Vol 7 (4) ◽  
pp. 486-497
Author(s):  
Gustavo Bhering ◽  
Franklin Serrano ◽  
Fabio Freitas
Keyword(s):  
Capital Flows ◽  
Income Elasticity ◽  
Growth Models ◽  
Critical Evaluation ◽  
External Debt ◽  
Balance Of Payments ◽  
Debt Sustainability ◽  
Rate Of Growth ◽  
Long Run ◽  
Alternative Approach

Thirlwall's law, given by the ratio of the rate of growth of exports to the income elasticity of imports is a key result of balance-of-payments-constrained long-run growth models with balanced trade. Some authors have extended the analysis to incorporate long-run net capital flows. We provide a critical evaluation of these efforts and propose an alternative approach to deal with long-run external debt sustainability, based on two key features. First, we treat the external debt-to-exports ratio as the relevant indicator for the analysis of external debt sustainability. Second, we include an external credit constraint in the form of a maximum acceptable level of this ratio. The main results that emerge are that sustainable long-run capital flows can positively affect the long-run level of output, but not the rate of growth compatible with the balance-of-payments constraint, as exports must ultimately tend to grow at the same rate as imports. Therefore, Thirlwall's law still holds.

scholarly journals Endogeneity of the elasticities and the real exchange rate in a balance of payments constrained growth model: cross-country empirical evidence

2019 ◽  
Vol 5 (2) ◽  
pp. 214-238
Author(s):  
Renato S. Campos ◽  
Frederico Gonzaga Jayme Jr. ◽  
Gustavo Britto
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Income Elasticity ◽  
Growth Models ◽  
Balance Of Payments ◽  
Sustainable Growth ◽  
The Real ◽  
Income Elasticities ◽  
Sustainable Growth Rate ◽  
Cross Country

Balance of payments constrained growth models are notable for their longevity. This is especially true for the case of Thirlwall’s Law, which defines that a country’s sustainable growth rate is given by the ratio between the income elasticity of exports and that of imports. In light of this, the current paper explores the hypothesis that the income elasticities of this type of models are endogenous. The debate on the latter is resurgent in the literature.  The results provide evidence that the ratio is, indeed, exogenous, and that the level of the real exchange rate influences economic growth as it determines such ratio. In other words, the real exchange rate is important for improving non-price competitiveness without, however, making the ratio between elasticities endogenous.

scholarly journals Balance of Payments Constrained Economic Growth in the Baltics

Ekonomika ◽  
2004 ◽  
Vol 65 ◽  
Author(s):  
Jorgen Drud Hansen ◽  
Virmantas Kvedaras
Keyword(s):  
Economic Growth ◽  
Growth Rates ◽  
Growth Models ◽  
Balance Of Payments ◽  
Gdp Growth ◽  
Supply Side ◽  
Oriented Growth ◽  
Income Elasticities ◽  
Baltic Countries ◽  
Rates Of Growth

This paper examines, the prospects for economic growth in the three Baltic countries in a framework of a balance of payment constrained growth model. Based on an estimation of income elasticities of imports and assumptions about export growth, GDP growth rates are calculated consistent with balance of payment equilibrium or alternatively, consistent with a given growth rate of capital imports. The results show that the calculated rates of growth for Estonia and Lithuania are lower than the growth rates predicted from traditional supply side oriented growth models.

Genesis, Context, Focus, and Accounting Relations of Standard Macroeconomics

2020 ◽  
pp. 3-24
Author(s):  
Giovanni Andrea Cornia
Keyword(s):  
Growth Models ◽  
Balance Of Payments ◽  
Historical Evolution ◽  
Demand Side ◽  
Short Term ◽  
Macroeconomic Theory ◽  
Advanced Economies ◽  
Distribution Of Income

This chapter defines the field of investigation and the main issues analysed by short-term, demand-side macroeconomics and long-term growth models in the now advanced economies. It presents also the set of accounting relations (for the production, uses, and distribution of income, for the balance of payments, and for the macro financial accounts) that are used to describe the functioning of the macroeconomy, and to assess its performance. Finally, it discusses briefly the context and historical evolution of macroeconomic theory during the last two centuries, by referring to the classical, Keynesian, neoclassical synthesis, monetarist, new classical, and structuralist macroeconomic approaches.

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