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The Balance-of-Payments Constrained Growth Model in Transitional Economy: The Case of Bulgaria

In: Economic Crisis, Development and Competitiveness in Southeastern Europe

Author

Listed:
  • Elena Spasova

    (New Bulgarian University)

Abstract

This paper examines the growth dynamics of the Bulgarian economy in the last 20 years in the light of the concept of balance-of-payments (BOP) constrained growth developed by Anthony Thirlwall (Thirlwall’s Law). Thirlwall’s Law aims at evaluating a country’s growth rate consistent with internal and external economic equilibrium. It states that BOP equilibrium requires a rate of economic growth not exceeding the ratio of the income elasticity of a country’s exports to the income elasticity of its imports—giving focus on price and non-price competitiveness. The study aims to verify whether the balance-of-payments constrained growth approach is suitable for explaining the Bulgarian growth performance in the last two decades. To this end, an econometric analysis of the equilibrium (sustainable) growth rate of the Bulgarian economy according to the concept of the BOP constraint on growth is made and compared to the actual registered levels of growth. The analysis clearly demonstrates that the characteristics of Bulgarian external trade represent a constraint on the country’s growth dynamics and hinder the process of sustainable economic convergence with the developed world.

Suggested Citation

  • Elena Spasova, 2016. "The Balance-of-Payments Constrained Growth Model in Transitional Economy: The Case of Bulgaria," Contributions to Economics, in: Anastasios Karasavvoglou & Dimitrios Kyrkilis & Georgios Makris & Persefoni Polychronidou (ed.), Economic Crisis, Development and Competitiveness in Southeastern Europe, pages 75-92, Springer.
    • Handle: RePEc:spr:conchp:978-3-319-40322-9_5
    DOI: 10.1007/978-3-319-40322-9_5
    as

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