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

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  • Rafael S. M. Ribeiro
  • John S. L. McCombie
  • Gilberto Tadeu Lima

Abstract

This article develops a formal model that accounts for the net effect of an exchange rate devaluation on the long-term balance-of-payments constrained growth rate. Such a model investigates how a currency devaluation impacts on the home country non-price competitiveness via changes in income distribution and the rate of technological innovation. The model is built upon two plausible hypotheses. First, it is assumed that the rate of technological innovation is directly related to the income elasticity of demand for exports and inversely related to the income elasticity of demand for imports. Second, it is assumed that a redistribution of income between labor and capital has an ambiguous direct impact on the income elasticities ratio. The model shows that the net impact of a currency devaluation on growth can go either way depending on the institutional framework of the economy.

Suggested Citation

  • Rafael S. M. Ribeiro & John S. L. McCombie & Gilberto Tadeu Lima, 2016. "Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model," Review of Political Economy, Taylor & Francis Journals, vol. 28(4), pages 545-565, October.
    • Handle: RePEc:taf:revpoe:v:28:y:2016:i:4:p:545-565
    DOI: 10.1080/09538259.2016.1205819
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    1. Gabriel Porcile & Gilberto Tadeu Lima, 2010. "Real exchange rate and elasticity of labour supply in a balance-of-payments-constrained macrodynamics," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(6), pages 1019-1039.
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    4. M. Rusydi & Sardar M. N. Islam, 2007. "Exchange Rate Economics in Developing Countries: Indonesian Exchange Rate Analysis," Palgrave Macmillan Books, in: Quantitative Exchange Rate Economics in Developing Countries, chapter 3, pages 34-44, Palgrave Macmillan.
    5. Raphael Rocha Gouvêa & Gilberto Tadeu Lima, 2013. "Balance‐of‐payments‐constrained growth in a multisectoral framework," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 40(2), pages 240-254, May.
    6. Gabriel Porcile & Marcus Dutra & Antonio Meirelles, 2007. "Technology gap, real wages, and learning in a balance-of-payments---constrained growth model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(3), pages 473-500.
    7. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," NBER Working Papers 6174, National Bureau of Economic Research, Inc.
    8. Jonathan Perraton, 2003. "Balance of Payments Constrained Growth and Developing Countries: An examination of Thirlwall's hypothesis," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(1), pages 1-22.
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    2. 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.
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    5. 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.
    6. Ribeiro, Rafael S.M. & McCombie, John S.L. & Lima, Gilberto Tadeu, 2020. "Does real exchange rate undervaluation really promote economic growth?," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 408-417.
    7. Tamer Rawashdeh & Mahmoud Al-Rdaydeh & Basem Hamouri, 2020. "The Effect of International Currency Crises on the Balance of Payments: Evidence From Jordan," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 275-284, October.
    8. Adalmir Marquetti & Luiz Eduardo Ourique & Henrique Morrone, 2020. "A Classical-Marxian Growth Model of Catching Up and the Cases of China, Japan, and India: 1980–2014," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(2), pages 312-334, June.
    9. Dávila-Fernández, Marwil & Oreiro, José, 2021. "A song of ice and fire: Competitiveness in an export-led growing economy," MPRA Paper 109821, University Library of Munich, Germany.
    10. 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.
    11. Porcile, Gabriel & Sartorello Spinola, Danilo & Yajima, Giuliano, 2020. "Patterns of growth in structuralist models: The role of the real exchange rate and industrial policy," MERIT Working Papers 2020-027, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    12. Frenkel, Roberto & Rapetti, Martin, 2014. "The real exchange rate as a target of macroeconomic policy," MPRA Paper 59335, University Library of Munich, Germany.
    13. 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.
    14. 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.
    15. Porcile, Gabriel & Spinola, Danilo & Yajima, Giuliano, 2021. "Patterns of Growth in Structuralist Models: The Role of PoliticalEconomy," CAFE Working Papers 12, Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University.
    16. Esteban Javier Leguizamón & Pablo Alfredo Gluzmann, 2019. "Tipo de cambio real y crecimiento económico: Un análisis de robustez," Asociación Argentina de Economía Política: Working Papers 4162, Asociación Argentina de Economía Política.
    17. Antonio Soares Martins Neto, 2017. "Income distribution and external constraint: Brazil in the commodities boom [Income distribution and external constraint: Brazil in the commodities boom]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 27(1), pages 7-34, January-A.

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    More about this item

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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