Causes of the Decline of Economic Growth in Italy and the Responsibility of EURO. A Balance-of-Payments Approach
AbstractSome countries of the Euro-zone have experienced a declining economic growth more pronounced in the last recent years, like Italy. The aim of this paper is to investigate the causes of the poor growth performance in Italy and the responsibility of the Euro for this crisis. The theoretical approach applied is based on the balance-of-payments constraint hypothesis (known as Thirlwall’s Law) adapted to include internal and external imbalances. Our empirical analysis shows that both the extended model and the original Thirlwall’s Law over-predict the actual growth in Italy suggesting that there are supply constraints that encumber the economy from growing faster. Another conclusion is that part of the decline in economic growth is explained by the loss of competiveness during the Euro period. A scenarios analysis shows that a budget deficit and public debt discipline aiming at achieving the goals of the Stability Pact are not significant stimulus for faster growth. On the other hand, reducing the import dependence of the components of demand, or reducing the import and increasing the export shares in the economy are the most effective policies for fostering growth in Italy.
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Bibliographic InfoPaper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2012-03.
Length: 25 pages
Date of creation: Feb 2012
Date of revision:
Internal and External Imbalances; Import Elasticities of the Components of Demand; Equilibrium Growth Rates; 3SLS System Regressions.;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- H6 - Public Economics - - National Budget, Deficit, and Debt
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
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