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Balance-of-payments-constrained growth and convergence: one more piece of the jigsaw

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  • Carlos Garcimartín
  • José Alonso
  • Luis Rivas

Abstract

Broadly speaking, the balance-of-payments-constraint hypothesis as developed by Thirlwall (1979) has been empirically supported. Yet, it fails to interpret correctly the necessary conditions for convergence. Although the neoclassical explanation of economic growth is not necessarily the correct one, it is a fact that some countries have indeed converged to others. When Thirlwall's model accounts for the possibility of convergence, it shows two main puzzling implications since it depends on income elasticities. First, a higher income elasticity to exports/imports ratio in backward countries not only implies convergence but divergence in the long run. Second, the non-price competitiveness is higher in the backward countries since they have a higher ratio. This study aims at developing a model that is able to reconcile the balance-of-payments-constraint hypothesis with convergence. Subsequently, it is applied to countries of the Organization for Economic Cooperation and Development (OECD).

Suggested Citation

  • Carlos Garcimartín & José Alonso & Luis Rivas, 2014. "Balance-of-payments-constrained growth and convergence: one more piece of the jigsaw," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(3), pages 555-585.
    • Handle: RePEc:mes:postke:v:36:y:2014:i:3:p:555-585
    DOI: 10.2753/PKE0160-3477360308
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    Cited by:

    1. Kvedaras, Virmantas & Garcimartín, Carlos & Astudillo, Jhonatan, 2020. "Balance-of-Payments constrained growth dynamics: An empirical investigation," Economic Modelling, Elsevier, vol. 89(C), pages 232-244.
    2. Mohammed Al- Mahish, 2017. "Does Balance of Payments Constrained Growth Model Hold in Saudi Arabia?," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 2(1), pages 1-15, March.
    3. Elias Soukiazis & Eva Muchová & Peter Leško, 2017. "Are the Transition Economies Balance-of-Payments Constrained? An Aggregate and Multisector Approach Applied to Central and Eastern Europe," Eastern European Economics, Taylor & Francis Journals, vol. 55(5), pages 453-476, September.

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