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Growth Performance in Portugal since the 1960s: A Simultaneous Equation Approach with Cumulative Causation Characteristics

  • Elias Soukiazis
  • Micaela Antunes

The aim of this paper is to explain growth performance in Portugal in the last decades (1965-2006) through a multi-equation system with cumulative growth characteristics. The model uses a demand-orientated approach to determine the main relationships, which explain growth through a virtuous cycle. The idea is to identify the driving forces of growth with causal linkages and feedback tendencies that enable the process to be self-sustained. We estimate the multi-equation growth model by 3SLS to capture more efficiently the interrelations between the main growth forces and to control for the endogeneity of the regressors. Our evidence shows that the proposed model can successfully explain the Portuguese growth performance, highlighting the importance of export competitiveness as the key factor in this process. The cumulative growth process was interrupted at some points mainly due to the incapacity to transfer productivity gains into domestic prices and to make the economy more competitive. We also show that capital accumulation does not affect productivity growth, and domestic prices do not improve export competitiveness. These are the main drawbacks of the Portuguese economy that could explain the failure to achieve higher growth rates in the period 1965-2006.

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Article provided by M.E. Sharpe, Inc. in its journal Journal of Economic Issues.

Volume (Year): 47 (2013)
Issue (Month): 1 (March)
Pages: 169-192

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Handle: RePEc:mes:jeciss:v:47:y:2013:i:1:p:169-192
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  1. Micaela Antunes & Elias Soukiazis, 2011. "How well the balance-of- payments constraint approach explains the Portuguese growth performance. Empirical evidence for the 1965-2008 period," ERSA conference papers ersa10p125, European Regional Science Association.
  2. Robert A. Blecker, 2009. "Long-Run Growth in Open Economies: Export-Led Cumulative Causation or a Balance-of-Payments Constraint?," Working Papers 2009-23, American University, Department of Economics.
  3. Fulvio Castellacci, 2002. "Technology Gap and Cumulative Growth: Models and outcomes," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(3), pages 333-346.
  4. Kaldor, Nicholas, 1975. "What Is Wrong with Economic Theory," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 347-57, August.
  5. Lydia Greunz, 2001. "European regional growth, technology gap and R&D efforts," ERSA conference papers ersa01p92, European Regional Science Association.
  6. Kennedy, Charles & Thirlwall, A P, 1972. "Technical Progress: A Survey," Economic Journal, Royal Economic Society, vol. 82(325), pages 11-72, March.
  7. Bernard Fingleton, 2000. "Convergence: International comparisons based on a simultaneous equation model with regional effects," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(3), pages 285-305.
  8. Dixon, R & Thirlwall, A P, 1975. "A Model of Regional Growth-Rate Differences on Kaldorian Lines," Oxford Economic Papers, Oxford University Press, vol. 27(2), pages 201-14, July.
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