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Growth and the external constraint: lessons from the Spanish case

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  • Jose Antonio Alonso

Abstract

The present article attempts to determine the role played by the balance-of-payments constraint on economic growth in Spain (1960-94), using cointegration techniques. This empirical exercise also serves to reveal some shortcomings in the usual procedures for estimating Thirlwall's Law. In particular, the Spanish case reveals how important it is to introduce a variable that expresses the competitiveness gains generated by improvements in quality of the goods and services into the export function. It also demonstrates the inadequate simplification entailed in an a priori exclusion of relative prices in external equilibrium equation. Not taking these two aspects into consideration may give rise to an erroneous confirmation of Thirlwall's Law, especially if, as in the Spanish case, both effects offset each other. Finally, if the aim is to analyse long-term relationships between variables, it would seem advisable to use procedures, such as cointegration, with variables in levels.

Suggested Citation

  • Jose Antonio Alonso, 1999. "Growth and the external constraint: lessons from the Spanish case," Applied Economics, Taylor & Francis Journals, vol. 31(2), pages 245-253.
  • Handle: RePEc:taf:applec:v:31:y:1999:i:2:p:245-253
    DOI: 10.1080/000368499324471
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    Cited by:

    1. repec:ucm:wpaper:02-05 is not listed on IDEAS
    2. Douglas Alcantara Alencar & Douglas Alcantara Alencar & Eduardo Strachman, 2016. "Foreign Direct Investment And Balance Of Payments In Latin America (1990-2011)," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42ndd Brazilian Economics Meeting] 081, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Bajo-Rubio, Oscar, 2012. "The balance-of-payments constraint on economic growth in a long-term perspective: Spain, 1850–2000," Explorations in Economic History, Elsevier, vol. 49(1), pages 105-117.
    4. Salvador Barrios, "undated". "Foreign Direct Investment Productivity Spillovers. Evidence From the Spanish Experience," Studies on the Spanish Economy 86, FEDEA.
    5. Salvador Barrios & Eric Strobl, 2002. "Foreign direct investment and productivity spillovers: Evidence from the Spanish experience," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 138(3), pages 459-481, September.
    6. Matteo Lanzafame, 2014. "The balance of payments-constrained growth rate and the natural rate of growth: new empirical evidence," Cambridge Journal of Economics, Oxford University Press, vol. 38(4), pages 817-838.
    7. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208.
    8. Julio Herrera & Jesus Santamaria, 2001. "The external constraint to the economic growth in three blocks of the world economy," ERSA conference papers ersa01p244, European Regional Science Association.
    9. Luis Sastre, 2005. "An Alternative Model for the Trade Balance of Countries with Open Economies: The Spanish Case," Working Papers del Instituto Complutense de Estudios Internacionales 0502, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    10. 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.
    11. Anthony P. Thirlwall, 2011. "Balance of payments constrained growth models: history and overview," PSL Quarterly Review, Economia civile, vol. 64(259), pages 307-351.
    12. Salvador Barrios, "undated". "Foreign Direct Investment and Productivity Spillovers," Working Papers 2000-19, FEDEA.
    13. Salvador Barrios & Holger Görg & Eric Strobl, "undated". "Explaining Firms' Export Behaviour: The Role of R&D and Spillovers," Working Papers 2001-12, FEDEA.
    14. Senay, Acikgöz & Mert, Merter, 2015. "The endogeneity of the natural rate of growth: An alternative approach," Economics Discussion Papers 2015-2, Kiel Institute for the World Economy (IfW).
    15. Douglas Alcantara Alencar & Eduardo Strachman, 2014. "Investimento Direto Estrangeiro E Balanço De Pagamentos, No Brasil: 1994 E 2008," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 048, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    16. Leon Podkaminer, 2017. "“Thirlwall’s Law” reconsidered," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(1), pages 29-57, February.

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