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The balance-of-payments—constrained growth model: a north—south approach

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  • Leonardo Vera

Abstract

This paper develops a general extended version of the balance-of-payments -constrained growth model that takes into account three often ignored aspects of contemporary growth in open economies—namely, trade imbalances and the importance of net financial flows in the long run, relative price changes caused by idiosyncratic rules of adjustment in prices, and trade and payments interdependence among asymmetric regions. We first present partial solutions for both a northern and a southern region under the key assumption of an exogenous world income growth. We show how, under specific assumptions, the solutions reduce to Thirlwall's rule. After that, we lift the small economy assumption and allow full interdependence among regions and explore the implications, over the terms of trade and the rate of growth of both regions, of changes in the rate of growth of net financial transfers. Contingent on parameters values of each region, we found that an exogenous change in the rate of growth of financial transfers may generate either a mutually reinforcing growth regime or a conflicting growth regime.

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  • Leonardo Vera, 2006. "The balance-of-payments—constrained growth model: a north—south approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(1), pages 67-92.
  • Handle: RePEc:mes:postke:v:29:y:2006:i:1:p:67-92 DOI: 10.2753/PKE0160-3477290104
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    Cited by:

    1. Cimoli, Mario & Porcile, Gabriel, 2011. "Tecnologia, heterogeneidad y crecimiento: una caja de herramientas estructuralista
      [Technology, heterogeneity and Growth: A Structuralist Toolbox]
      ," MPRA Paper 33801, University Library of Munich, Germany.
    2. Mario Cimoli & Jose Antonio Ocampo & Gabriel Porcile, 2017. "Choosing sides in the trilemma: international financial cycles and structural change in developing economies," LEM Papers Series 2017/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    3. Victor Yotzov, 2013. "Economic growth through the prism of the external sector," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 3-19,20-34.
    4. Garcimartin, Carlos & Kvedaras, Virmantas & Rivas, Luis, 2016. "Business cycles in a balance-of-payments constrained growth framework," Economic Modelling, Elsevier, vol. 57(C), pages 120-132.
    5. Anthony P. Thirlwall, 2011. "Balance of payments constrained growth models: history and overview," PSL Quarterly Review, Economia civile, vol. 64(259), pages 307-351.
    6. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208, April.

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