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Italy’s decline and the balance-of-payments constraint: a multicountry analysis

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  • Alberto Bagnai

Abstract

According to the literature, the decline experienced by the Italian economy in the last two decades depends on a slowdown of its labour productivity, starting in the 1990s. The supply-side explanations of this slowdown are inconsistent with the major stylised facts. In this paper, we verify whether a better explanation is provided by the effect of a negative demand shock, through Italy’s external constraints, in the framework of Kaldor-Dixon-Thirlwall’s cumulative growth model. To this end, we use a multi-country generalisation of Thirlwall’s balance-of-payments-constrained growth model, which allows us to investigate the contribution of Italy’s main trade partners to Italy’s long-run growth from 1970 to 2010. The trade partners are disaggregated into seven groups: Eurozone core, Eurozone periphery, United States, other European countries, OPEC countries, BRIC, and the rest of the world. The results show that Italy’s long-run growth has been consistent with the Bop-constraint, that its decline can be explained by a progressive tightening of this constraint, that the sudden slowdown of labour productivity in the 1990s corresponds to a major shock on Italy’s external constraint, and that the major contributions to this shock came, through different channels of transmission, from the core Eurozone countries and from OPEC countries.

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  • Alberto Bagnai, 2016. "Italy’s decline and the balance-of-payments constraint: a multicountry analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 1-26, January.
  • Handle: RePEc:taf:irapec:v:30:y:2016:i:1:p:1-26
    DOI: 10.1080/02692171.2015.1065226
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Il saccheggio del Made in Italy
      by Alberto Bagnai in Goofynomics on 2018-01-07 18:33:00

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    2. Stefano Lucarelli & Roberto Romano, 2016. "The Italian Crisis within the European Crisis. The Relevance of the Technological Foreign Constraint," World Economic Review, World Economics Association, vol. 2016(6), pages 1-12, February.
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    5. Gaetano Perone, 2017. "Produttività del lavoro, dinamica salariale e squilibri commerciali nei Paesi dell’Eurozona: un’analisi empirica," Working Papers 0028, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.

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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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