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Italy’s Decline and the Balance-of-Payments Constraint: a Multicountry Analysis

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  • Alberto Bagnai

    () (Department of Economics, Gabriele d'Annunzio University)

Abstract

According to the literature, the decline experienced by the Italian economy in the last two decades depends on a slowdown of its labor productivity, starting in the Nineties. The supply-side explanations of this slowdown are inconsistent with the major stylized 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 cumulative growth model. To this end, we use a multi-country generalization 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 labor productivity in the Nineties corresponds with 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," a/ Working Papers Series 1606, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  • Handle: RePEc:ais:wpaper:1606
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    References listed on IDEAS

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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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    Cited by:

    1. Alberto Bagnai & Christian Alexander Mongeau Ospina, 2017. "Neoclassical versus Post-Keynesian Explanations of the Pre-Great Recession Productivity Slowdown: Panel Evidence," a/ Working Papers Series 1704, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
    2. Bruno Pellegrino & Luigi Zingales, 2017. "Diagnosing the Italian Disease," NBER Working Papers 23964, National Bureau of Economic Research, Inc.
    3. 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.
    4. 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.
    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.

    More about this item

    Keywords

    General aggregative model: post-Keynesian; Economic growth of open economies; Development planning and policy: trade policy; foreign exchange policy.;

    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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