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An Extended Structural Economic Dynamics Approach To Balance-Of-Payments-Constrained Growth: Level Of The Real Exchange Rate And Endogenous Elasticities

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  • RICARDO SILVA AZEVEDO ARAUJO
  • FABRICIO MISSIO
  • FREDERICO JAYME JÚNIO

Abstract

The aim of this paper is to show that the level of the real exchange rate affects the rate of economic growth. More specifically, we extend the model developed by Araujo and Lima (2007) to derive a balance-of-payments equilibrium growth rate analogous to Thirlwall’s Law based on a Pasinettian multi-sector macrodynamic framework in which income elasticities are endogenous to the level of the real exchange. Furthermore, the model is built to relate growth, the real exchange rate and sectoral heterogeneity. We thus demonstrate the effect of the level of real exchange rates on the generation of technological progress, from a cumulative causation perspective, and how these rates also impact the growth of the whole economy via a balance-of-payments constraint approach. Hence, we show that an undervalued real exchange rate has positive effects on economic growth in developing countries.
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  • Ricardo Silva Azevedo Araujo & Fabricio Missio & Frederico Jayme Júnio, 2014. "An Extended Structural Economic Dynamics Approach To Balance-Of-Payments-Constrained Growth: Level Of The Real Exchange Rate And Endogenous Elasticities," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 117, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    • Handle: RePEc:anp:en2013:117
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    Cited by:

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    3. Hiroshi Nishi, 2014. "Income Distribution and Economic Growth in a Multi-Sectoral Kaleckian Model," Discussion papers e-14-011, Graduate School of Economics Project Center, Kyoto University.
    4. Nishi, Hiroshi, 2016. "A multi-sectoral balance-of-payments-constrained growth model with sectoral heterogeneity," Structural Change and Economic Dynamics, Elsevier, vol. 39(C), pages 31-45.

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    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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