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Capital Flows, Interest Payments and the Balance-of-Payments Constrained Growth Model: A Theoretical and Empirical Analysis

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  • Juan Carlos Moreno-Brid

Abstract

The analytical framework known as the balance-of-payments constrained growth model introduced by Anthony P. Thirlwall more than two decades ago, and further developed by him and N. Hussain, was a major contribution to understanding the relevance of a foreign exchange constraint on the long-run growth performance of open economies. In its simplest expression this model is known as Thirlwall's law. Recent contributions have revised this analytical model in order to ensure that the pattern of foreign debt accumulation, implicit in the economy's balance-of-payments constrained growth path, is sustainable. Up to now most theoretical presentations of Thirlwall's law do not incorporate interest payments explicitly and, moreover, the empirical studies carried out within this tradition do not take them into account. This omission may be a major shortcoming in the analysis of the long-term growth path of economies-like many developing ones-whose net interest payments abroad are a large debit item in the current account of their balance of payments. In the present paper we introduce an extension of the balance-of-payments constrained growth model that explicitly captures the influence on foreign interest payments of the economy's long-run rate of growth-while at the same time guaranteeing that foreign indebtedness is not on an explosive track-and test its empirical adequacy by applying it to examine the Mexican case. Copyright Blackwell Publishing Ltd 2003.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Metroeconomica.

Volume (Year): 54 (2003)
Issue (Month): 2-3 (05)
Pages: 346-365

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Handle: RePEc:bla:metroe:v:54:y:2003:i:2-3:p:346-365

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Cited by:
  1. João Prates Romero & Fabrício Silveira & Gustavo Britto, 2011. "Structural change, National Innovation System and balance-of-payments contraint: a theoretical and empirical analysis of the Brazilian case," Textos para Discussão Cedeplar-UFMG 440, Cedeplar, Universidade Federal de Minas Gerais.
  2. André Nassif & Carmem Feijó & Eliane Araújo, 2014. "Structural Change And Economicdevelopment: Is Brazil Catching Up Or Falling Behind?," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 091, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  3. Cimoli, Mario & Porcile, Gabriel, 2011. "Tecnologia, heterogeneidad y crecimiento: una caja de herramientas estructuralista
    [Technology, heterogeneity and Growth: A Structuralist Toolbox]
    ," MPRA Paper 33801, University Library of Munich, Germany.
  4. Cimoli, Mario & Porcile, Gabriel, 2011. "Technology, structural change and BOP constrained growth: A structuralist toolbox," MPRA Paper 33800, University Library of Munich, Germany.
  5. Eva Yamila da Silva Catela & Gabriel Porcile, 2012. "Keynesian and Schumpeterian efficiency in a BOP-constrained growth model," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 34(4), pages 777-802, July.
  6. A. P. Thirlwall, 2011. "Balance of Payments Constrained Growth Models: History and Overview," Studies in Economics 1111, Department of Economics, University of Kent.
  7. Gökçe, Atilla & Çankal, Erhan, 2013. "Balance-of-payments constrained growth model for the Turkish economy," Economic Modelling, Elsevier, vol. 35(C), pages 140-144.
  8. Marcos Tostes Lamonica & Carmem Aparecida Feijo, 2007. "Crescimento E Industrialização No Brasil: As Lições Das Leis De Kaldor," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 053, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  9. Soukiazis, Elias & Cerqueira, Pedro A. & Antunes, Micaela, 2012. "Modelling economic growth with internal and external imbalances: Empirical evidence from Portugal," Economic Modelling, Elsevier, vol. 29(2), pages 478-486.
  10. Gustavo Britto & João Prates Romero, 2011. "Modelos kaldorianos de crescimento e suas extensões contemporâneas," Textos para Discussão Cedeplar-UFMG 449, Cedeplar, Universidade Federal de Minas Gerais, revised Jul 2013.

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