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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.

Suggested Citation

  • 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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    File URL: http://hdl.handle.net/10.1080/02692171.2015.1065226
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    References listed on IDEAS

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    1. repec:spr:sptbec:978-3-662-49862-0 is not listed on IDEAS
    2. Giancarlo Gandolfo, 2016. "International Finance and Open-Economy Macroeconomics," Springer Texts in Business and Economics, Springer, edition 2, number 978-3-662-49862-0, October.
    3. A. P. Thirlwall, 2002. "The Nature of Economic Growth," Books, Edward Elgar Publishing, number 2579.
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    Blog mentions

    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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    Cited by:

    1. 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.
    2. 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.
    3. repec:mes:postke:v:41:y:2018:i:2:p:236-259 is not listed on IDEAS
    4. Bruno Pellegrino & Luigi Zingales, 2017. "Diagnosing the Italian Disease," NBER Working Papers 23964, National Bureau of Economic Research, Inc.
    5. Pasquale Tridico & Riccardo Pariboni, 2018. "Inequality, financialization, and economic decline," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(2), pages 236-259, April.

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