scholarly journals Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model

2016 ◽  
Vol 28 (4) ◽  
pp. 545-565 ◽  
Author(s):  
Rafael S. M. Ribeiro ◽  
John S. L. McCombie ◽  
Gilberto Tadeu Lima
Keyword(s):  
Exchange Rate ◽  
Income Distribution ◽  
Growth Model ◽  
Technical Change ◽  
Balance Of Payments

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.

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).

Thirlwall's law and the terms of trade: a parsimonious extension of the balance-of-payments-constrained growth model

2019 ◽  
Vol 7 (4) ◽  
pp. 463-485
Author(s):  
Esteban Pérez Caldentey ◽  
Juan Carlos Moreno-Brid
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Growth Model ◽  
Capital Flows ◽  
Export Performance ◽  
Terms Of Trade ◽  
Balance Of Payments ◽  
The Real ◽  
Elasticity Of Demand ◽  
Foreign Capital Inflows

This paper extends the balance-of-payments-constrained (BoPC) growth model and Thirlwall's law to include the terms of trade with and without capital flows. Without capital flows a positive (negative) change in the terms of trade by improving (worsening) export performance can ceteris paribus augment (reduce) the rate of growth of an economy compatible with balance of payments’ long-run equilibrium. With the inclusion of capital flows the BoPC dynamics become more complex. Assuming no changes in the real exchange rate and in the import elasticity of demand, an improvement in the terms of trade can increase the level of the external deficit compatible with BoPC growth. This results from the terms-of-trade effects on the purchasing of exports and on foreign-capital inflows. The positive effect of an improvement in the terms of trade may be partially offset by an appreciation of the real exchange rate and an increase in the import elasticity of demand, when the model is extended to allow for such interactions in the analysis.

Balance of Payments and Exchange Rate Systems

1974 ◽  
Vol 30 (4) ◽  
pp. 26-32
Author(s):  
Arthur B. Laffer
Keyword(s):  
Exchange Rate ◽  
Balance Of Payments

scholarly journals A Discrete Heterogeneous-Group Economic Growth Model with Endogenous Leisure Time

2009 ◽  
Vol 2009 ◽  
pp. 1-17
Author(s):  
Wei-Bin Zhang
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Income Distribution ◽  
Growth Model ◽  
Time Allocation ◽  
Capital Accumulation ◽  
Economic Growth Model ◽  
National Economic ◽  
The Rich ◽  
Main Engine

This paper proposes a one-sector multigroup growth model with endogenous labor supply in discrete time. Proposing an alternative approach to behavior of households, we examine the dynamics of wealth and income distribution in a competitive economy with capital accumulation as the main engine of economic growth. We show how human capital levels, preferences, and labor force of heterogeneous households determine the national economic growth, wealth, and income distribution and time allocation of the groups. By simulation we demonstrate, for instance, that in the three-group economy when the rich group's human capital is improved, all the groups will economically benefit, and the leisure times of all the groups are reduced but when any other group's human capital is improved, the group will economically benefit, the other two groups economically lose, and the leisure times of all the groups are increased.

Carry Trade, Exchange Rates, and the Balance-of-Payments

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Nelson H. Barbosa-Filho
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Real Exchange Rate ◽  
Foreign Debt ◽  
Balance Of Payments ◽  
Forward Rate ◽  
Spot Rate ◽  
Financial Constraint ◽  
Carry Trade ◽  
The Real

Abstract This paper presents a partial equilibrium model that integrates interest rate arbitrage with the balance-of-payments constraint to determine the real exchange rate. The sequential logic is the following: (i) carry-trade determines the term premium, with the spot rate showing greater volatility than the forward rate, (ii) uncovered interest rate parity determines the spot rate based on the real exchange rate consistent with a financial constraint, defined as a stable ratio of foreign reserves to foreign debt; and (iii) the trade balance consistent with the financial constraint determines the long-run real exchange rate for a given ratio of domestic to foreign income.

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