Slovak economic growth and the consistency of the balance-of-payments constraint approach
AbstractThe 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 InfoPaper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2012-16.
Length: 29 pages
Date of creation: Oct 2012
Date of revision:
balance-of-payments equilibrium growth rate; price and income elasticities of foreign trade; 2SLS regressions.;
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
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