Exploring the Robustness of the Balance of Payments-Constrained Growth Idea in a Multiple Good Framework
AbstractThis paper derives the balance of payments-constrained growth (BPCG) model as a special case of a three good framework that incorporates exportables, importables, and non-tradables. The conditions under which the canonical form of the BPCG rate can be derived are made explicit and the assumptions scrutinized. It is shown that the presence of non-tradables, substitutability between exportables and importables, and incomplete specialization in expenditure generally dampen the externally-constrained growth rate. These findings help explain why empirical estimates tend to overestimate the BPCG rate. Overall our findings underscore the observation that tests of the BPCG hypothesis are as much a test of the internal structure of the economy under consideration. JEL Categories:
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Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2009-10.
Date of creation: Aug 2009
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