Growth and convergence/divergence in productivity under balance-of-payments constraint
AbstractThis paper presents a model of convergence/divergence in productivity for two economies of different size and development building on Kaldor’s cumulative causation and the technological gap approaches to growth. Both operate within the logic provided by a balance-of-payments constraint framework. The more developed and larger economy, the leader, is technologically more advanced with higher levels of productivity and issues the international reserve currency. The developing economy, the follower, is closely linked to the leader economy and is balance-of-payments-constrained (BPC). The paper argues that the growth of the leader has at the same time divergent and convergent effects on the productivity gap between both economies. The divergent effect (the Kaldor effect) works through a process of induced productivity and cumulative causation. The convergent effect (Thirlwall’s Law) works through the BPC constraint. The model states that growth with convergence in productivity requires that the ratio of export to import income elasticities of the follower economy exceeds the ratio of the induced productivity of the leader economy to that of the follower economy. The paper then highlights the difficulty of achieving convergence under a BPC constraint and provides policy implications.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 20056.
Date of creation: Apr 2010
Date of revision:
Kaldor effect; Thirlwall effect; convergence/divergence; balance-of-payments constraint;
Find related papers by JEL classification:
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
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- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
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