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

2021 ◽  
pp. 37-59
Author(s):  
Esteban Pérez Caldentey ◽  
Juan Carlos Moreno-Brid
Keyword(s):  
Growth Model ◽  
Terms Of Trade ◽  
Balance Of Payments

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.

Trends and Cycles in U.S. Trade with Spain and the Spanish Empire, 1790–1819

1984 ◽  
Vol 44 (2) ◽  
pp. 521-543 ◽  
Author(s):  
Javier Cuenca Esteban
Keyword(s):  
United States ◽  
The United States ◽  
Terms Of Trade ◽  
Balance Of Payments ◽  
Spanish America ◽  
Spanish Empire ◽  
Export Trade ◽  
Demand Elasticities ◽  
Merchandise Trade ◽  
Constant Prices

Analysis of balance-of-payments components with Spain and Spanish America helps account for spectacular economic gains to the United States in the neutrality years and for the subsequent turn to net deficit positions during the 1810s. Excess export values at constant prices with Spain and favorable terms of trade with Spanish America decisively contributed to large surpluses on commodity account through 1795–1813. Most cycles in merchandise trade are consistent with greater demand elasticities for exports than for imports.Net earings on freight, insurance, and mercantile profits boosted overall returns from the Spanish Empire at the very times when they were most needed to finance the re-export trade and to settle deficits elsewhere.

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).

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