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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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  • Carlos Garcimartín
  • Luis A. Rivas
  • Pilar García Martínez

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 analyzed. 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 the impact of relative prices. This model is subsequently used to analyze the evolution of the Spanish and Portuguese economies in past decades, and, in particular, the different paths shown by both countries since their accession to the euro zone.

Suggested Citation

  • Carlos Garcimartín & Luis A. Rivas & Pilar García Martínez, 2010. "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," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 33(2), pages 281-306, January.
  • Handle: RePEc:mes:postke:v:33:y:2010:i:2:p:281-306
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    Cited by:

    1. 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.
    2. Soukiazis, Elias & Cerqueira, Pedro André & Antunes, Micaela, 2014. "Explaining Italy's economic growth: A balance-of-payments approach with internal and external imbalances and non-neutral relative prices," Economic Modelling, Elsevier, vol. 40(C), pages 334-341.
    3. Anthony P. Thirlwall, 2011. "Balance of payments constrained growth models: history and overview," PSL Quarterly Review, Economia civile, vol. 64(259), pages 307-351.
    4. 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, Faculty of Economics, University of Coimbra.

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    Keywords

    exchange rate; external constraint; growth;

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