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Economic growth and the long run balance of payments constraint in Spain

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  • Jose M. Serrano Sanz
  • Marcela Sabate
  • Dolores Gadea

Abstract

The Thirlwall's Law test has been extensively employed in order to explain, from the demand side, the differences in rates of economic growth between countries. In this paper the test is put to an alternative use, namely to explain the uneven economic growth experienced in one single country, Spain, during two different periods, 1940-59 and 1960-85. Specifically, we seek to determine whether the liberalization of Spanish trade which preceded its integration into the EEC (1960-85) - insofar as this liberalization increased the possibilities of placing national production in the foreign market-might explain the higher rate of economic growth enjoyed during this period, as compared with the earlier period of economic autarky (1940-59). To that end, we estimate the corresponding export and import demand functions (using the Autoregressive Distributed Lags methodology and the cointegration approach of Johansen) and apply the McCornbie test. We conclude that the Spanish balance of payments, although determining the difference in potential growth between the two periods, did not function, strictu sensu, as a demand constraint. Rather, the responsibility for this lay with prices, which relaxed the limits imposed by foreign demand on growth during the autarky period and tightened them during the liberalization period.

Suggested Citation

  • Jose M. Serrano Sanz & Marcela Sabate & Dolores Gadea, 1999. "Economic growth and the long run balance of payments constraint in Spain," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(4), pages 389-417.
    • Handle: RePEc:taf:jitecd:v:8:y:1999:i:4:p:389-417
    DOI: 10.1080/09638199900000024
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    References listed on IDEAS

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    1. Anthony P. Thirlwall, 2011. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," PSL Quarterly Review, Economia civile, vol. 64(259), pages 429-438.
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    5. Thirlwall, Anthony P & Hussain, Mohammed Nureldin, 1982. "The Balance of Payments Constraint, Capital Flows and Growth Rate Differences between Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 498-510, November.
    6. H. Sonmez Atesoglu, 1997. "Balance-Of-Payments–Constrained Growth Model and Its Implications for the United States," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 19(3), pages 327-335, March.
    7. J. S. L. McCombie & A. P. Thirlwall, 1997. "The Dynamic Harrod Foreign Trade Multiplier and the Demand-orientated Approach to Economic Growth: an Evaluation," International Review of Applied Economics, Taylor & Francis Journals, vol. 11(1), pages 5-26.
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    9. J. S. L. McCombie & A. P. Thirlwall, 1994. "Economic Growth and the Balance-of-Payments Constraint," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-23121-8, December.
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    Cited by:

    1. Anthony Philip Thirlwall, 2012. "Balance of Payments Constrained Growth Models: History and Overview," Palgrave Macmillan Books, in: Elias Soukiazis & Pedro A. Cerqueira (ed.), Models of Balance of Payments Constrained Growth, chapter 1, pages 11-49, Palgrave Macmillan.
    2. Santiago Grullón, 2013. "Effects of Price and Income on International Travel to the Dominican Republic: Co-integration and Causality Results," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 1(4), pages 107-114.
    3. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208.

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