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Slovak economic growth and the consistency of the balance-of-payments constraint approach

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  • Elias Soukiazis

    ()
    (GEMF and Faculty of Economics, University of Coimbra, Portugal)

  • Eva Muchova

    (Faculty of National Economy, University of Economics in Bratislava, Slovakia)

Abstract

The present study aims at verifying whether the balance-of-payments constrained growth approach is suitable for explaining the Slovak growth performance after its peaceful separation from the former Czechoslovakia in 1993. We use Thirlwall´s Law to predict actual growth of the Slovak economy based on the estimation of the income elasticities of demand for imports and exports, respectively. The income elasticity of demand for imports is obtained by employing 2SLS assuming that domestic income is endogenous. It is shown that the Slovak economy grew at a higher rate than the rate consistent with the balance-of-payments equilibrium at the cost of accumulating current account deficits. A sustainable solution should be focused on reducing the income elasticity of the demand for imports and increasing exports growth. In order the country not to fall into a balance-of-payments constrained growth trap policies must be designed to reduce the country´s dependence on imports by producing higher quality tradable goods.

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Bibliographic Info

Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2012-16.

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Length: 29 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:gmf:wpaper:2012-16

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Keywords: balance-of-payments equilibrium growth rate; price and income elasticities of foreign trade; 2SLS regressions.;

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  1. H. Sonmez Atesoglu, 1995. "An explanation of the slowdown in US economic growth," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 2(4), pages 91-94.
  2. Anthony Philip Thirlwall, 1979. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 32(128), pages 45-53.
  3. H. Sonmez Atesoglu, 1993. "Balance-of-Payments-Constrained Growth: Evidence from the United States," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 15(4), pages 507-514, July.
  4. Thirlwall, Anthony P & Hussain, Mohammed Nureldin, 1982. "The Balance of Payments Constraint, Capital Flows and Growth Rate Differences between Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 498-510, November.
  5. Robert A. Blecker, 2009. "Long-Run Growth in Open Economies: Export-Led Cumulative Causation or a Balance-of-Payments Constraint?," Working Papers, American University, Department of Economics 2009-23, American University, Department of Economics.
  6. Elias Soukiazis & Micaela Antunes, 2011. "Application of the balance-of-payments-constrained growth model to Portugal, 1965-2008," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 34(2), pages 353-380, January.
  7. Nelson H. Barbosa Filho, 2002. "The Balance-of-payments Constraint: From Balanced Trade to Sustainable Debt," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2001-06, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
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Cited by:
  1. Elias Soukiazis & Eva Muchova & Pedro A. Cerqueira, 2014. "Is the Slovak Economy Doing Well? A Twin Deficit Growth Approach," GEMF Working Papers, GEMF - Faculdade de Economia, Universidade de Coimbra 2014-08, GEMF - Faculdade de Economia, Universidade de Coimbra.

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