IDEAS home Printed from https://ideas.repec.org/a/oup/cambje/v40y2016i6p1581-1608..html
   My bibliography  Save this article

Correctly analysing the balance-of-payments constraint on growth

Author

Listed:
  • Arslan Razmi

Abstract

The balance-of-payments-constrained growth (BPCG) model provides an interesting hypothesis regarding economic growth. The main implication is that world demand places the dominant constraint to which individual country growth adjusts. I discuss this implication and argue that tests of the BPCG model have essentially been tests of the hypothesis that trade is balanced over the long run; a plausible hypothesis but one that need not hold mainly through responses to world demand (as transmitted via income elasticities). I then discuss the role of relative prices and investment, point out logical inadequacies in the traditional BPCG framework and suggest an alternative theoretical framework to investigate its robustness. Our theoretical and empirical explorations suggest that traditional tests of the BPCG model may be misleading. Including investment as a proxy for the capacity to export and addressing endogeneity issues, for example, noticeably weakens the influence of world demand. The evidence presented contributes to reconciling evidence supporting the BPCG hypothesis with recent work that consistently finds an important role for the level of the real exchange rate and investment, independently of world demand.

Suggested Citation

  • Arslan Razmi, 2016. "Correctly analysing the balance-of-payments constraint on growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(6), pages 1581-1608.
    • Handle: RePEc:oup:cambje:v:40:y:2016:i:6:p:1581-1608.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/cje/bev069
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thomas H. W. Ziesemer, 2023. "Semi-endogenous growth in a non-Walrasian DSEM for Brazil: estimation and simulation of changes in foreign income, human capital, R&D, and terms of trade," Economic Change and Restructuring, Springer, vol. 56(2), pages 1147-1183, April.
    2. Dávila-Fernández, Marwil J. & Sordi, Serena, 2019. "Distributive cycles and endogenous technical change in a BoPC growth model," Economic Modelling, Elsevier, vol. 77(C), pages 216-233.
    3. Srdelić, Leonarda & Dávila-Fernández, Marwil J., 2024. "International trade and economic growth in Croatia," Structural Change and Economic Dynamics, Elsevier, vol. 68(C), pages 240-258.
    4. Sebastien Charles & Thomas Dallery & Jonathan Marie, 2022. "The slowing of growth in France: an interpretation based on Thirlwall’s law," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 45(1), pages 100-129, January.
    5. Cícero, Vinicius Curti & Lima, Gilberto Tadeu, 2023. "Functional distribution of income as a determinant of importing behavior: An empirical analysis," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 393-405.
    6. Dávila-Fernández, Marwil J. & Oreiro, José L. & Dávila Dávila, Mario W., 2018. "Endogenizing non-price competitiveness in a BoPC growth model with capital accumulation," Structural Change and Economic Dynamics, Elsevier, vol. 44(C), pages 77-87.
    7. Dávila-Fernández, Marwil J. & Sordi, Serena, 2020. "Attitudes towards climate policies in a macrodynamic model of the economy," Ecological Economics, Elsevier, vol. 169(C).
    8. Dávila-Fernández, Marwil J. & Sordi, Serena, 2019. "Path dependence, distributive cycles and export capacity in a BoPC growth model," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 258-272.
    9. Spinola, Danilo, 2020. "Uneven development and the balance of payments constrained model: Terms of trade, economic cycles, and productivity catching-up," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 220-232.
    10. 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.
    11. Marwil J. Dávila-Fernández & Serena Sordi, 2021. "Thirlwall's law: Binding-constraint or centre-of-gravity? A possible Kaleckian solution," Department of Economics University of Siena 853, Department of Economics, University of Siena.
    12. Robert A. Blecker, 2022. "New advances and controversies in the framework of balance‐of‐payments‐constrained growth," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 429-467, April.
    13. Basil Oberholzer, 2023. "Green Growth and the Balance‐of‐payments Constraint," Development and Change, International Institute of Social Studies, vol. 54(4), pages 804-840, July.
    14. Ismail Adigun Olayemi & Lateef Olawale Adedeji & Bashir Ayomide Adenekan & Omolola Raliat Owonikoko, 2017. "Is Nigerian Growth Trade-Led?," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 10(3), pages 80-89, September.
    15. Marwil J. Dávila-Fernández & Serena Sordi, 2019. "From open economies to attitudes towards change. Growth and institutions in Latin America and Asia," Department of Economics University of Siena 809, Department of Economics, University of Siena.
    16. Ziesemer, Thomas, 2022. "Linking the BOPC growth model with foreign debt dynamics to the goods and labour markets," MERIT Working Papers 2022-029, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    17. Yohanna Panshak & Irfan Civcir & Hüseyin Ozdeser, 2019. "Technology Gap and the Role of National Innovation System in a Balance of Payments Constrained Growth Model: Empirical Evidence From Nigeria," SAGE Open, , vol. 9(1), pages 21582440198, February.
    18. Araujo, Ricardo Azevedo & Teixeira, Joanilio Rodolpho, 2021. "An appraisal of neo-Kaldorian theories from a structural economic dynamics perspective," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 247-255.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:cambje:v:40:y:2016:i:6:p:1581-1608.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/cje .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.