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Balance of Payments Constrained Growth Model: The Case of India

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Author Info
Arslan Razmi () (University of Massachusetts Amherst)
Abstract

This study applies the Balance of Payments Constrained Growth (BPCG) model to India, a large developing country with a relatively low trade to GDP ratio. Rather than assuming similar elasticities of substitution between goods produced in different regions, the study extends the model to relax these assumptions. Johansen’s cointegration technique is employed to estimate trade parameters. Short-run adjustments are explored within a vector error correction framework. The average growth rates predicted by various forms of the BPCG hypothesis are found to be close to the actual average growth rate over the period 1950-1999, although individual decades display substantial deviations. JEL Categories: F43, F14, E12

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Paper provided by University of Massachusetts Amherst, Department of Economics in its series Working Papers with number 2005-05.

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Date of creation: Feb 2005
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Handle: RePEc:ums:papers:2005-05

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Keywords: Balance of payments-related constraints; real exchange rates; Johansen’s cointegration technique; strong form; weak form; trade multiplier; import compression.;

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  14. Rose, Andrew K., 1991. "The role of exchange rates in a popular model of international trade : Does the 'Marshall-Lerner' condition hold?," Journal of International Economics, Elsevier, vol. 30(3-4), pages 301-316, May. [Downloadable!] (restricted)
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