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On the Role of Relative Prices and Capital Flows in Balance-of-Payments Constrained Growth: the Experiences of Portugal and Spain in the Euro Area

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Author Info

  • Carlos Garcimartín

    ()
    (Universidad Rey Juan Carlos)

  • Luis Rivas

    ()
    (IE University)

  • Pilar García Martínez

    ()
    (Universidad de Salamanca)

Abstract

Broadly speaking, the balance-of-payments constraint hypothesis as developed by Thirlwall has been empirically supported. Yet, it shows some shortcomings highlighted in the literature. In our opinion, two of them must be analysed. First, temporary disequilibria and capital flows must be incorporated into the balance-of-payments constrained growth models. Second, the role of relative prices must be made explicit, since it can be relevant even in an external constraint framework. This study is aimed at developing a model that incorporates both possibilities: temporary external disequilibria and a the impact of relative prices. This model is subsequently used to analyse the evolution of the Spanish and Portuguese economies in last decades, and, in particular, the different path shown by both countries since their accession to the Eurozone.

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Bibliographic Info

Paper provided by Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales in its series Working Papers del Instituto Complutense de Estudios Internacionales with number 05-10.

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Length: 26 pages ISBN Number: 978-84-693-1512-5
Date of creation: 2010
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Handle: RePEc:ucm:wpaper:05-10

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Postal: Instituto Complutense de Estudios Internacionales. Finca Mas Ferre Campus de Somosaguas 28223 Madrid

Related research

Keywords: Growth; Balance of payments constraint; Exchange rate.;

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Cited by:
  1. Elias Soukiazis & Pedro Cerqueira & Micaela Antunes, 2012. "Causes of the Decline of Economic Growth in Italy and the Responsibility of EURO. A Balance-of-Payments Approach," GEMF Working Papers 2012-03, GEMF - Faculdade de Economia, Universidade de Coimbra.
  2. Soukiazis, Elias & Cerqueira, Pedro A. & Antunes, Micaela, 2012. "Modelling economic growth with internal and external imbalances: Empirical evidence from Portugal," Economic Modelling, Elsevier, vol. 29(2), pages 478-486.

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