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Long-Run Growth in Open Economies: Export-Led Cumulative Causation or a Balance-of-Payments Constraint?

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  • Robert A. Blecker

Abstract

The post-Keynesian tradition contains two different models of long-run growth in open economies -- the model of export-led cumulative causation (ELCC) originally conceived by Nicholas Kaldor and the model of balance-of-payments-constrained growth (BPCG) developed by A.P. Thirlwall. These models diverge significantly in their core underlying assumptions. For example, they disagree about whether long-term gains in relative price competitiveness are possible and whether import demand constrains long-run growth. The two modeling approaches also yield conflicting policy implications. For example, some ELCC models imply that a domestic demand stimulus can boost long-run growth by sparking a virtuous circle of cumulative causation (including an endogenous increase in productivity growth), while most BPCG models imply that only policies that raise the income elasticity of export demand or lower the income elasticity of import demand can permit faster growth in the long run. The fact that both models have found econometric support suggests that each contains empirically supported elements, but the tests that have been conducted to date have not had sufficient power to distinguish between them. This paper will present both models in a common analytical framework to compare their theoretical differences and policy implications. The paper will argue that a generalized BPCG model that allows for financial flows and relative price effects can incorporate the cumulative causation feedbacks from the ELCC approach while also imposing the balance of payments equilibrium condition that is missing from the latter. The paper will also explore under what conditions different versions of the models apply.

Suggested Citation

  • Robert A. Blecker, 2009. "Long-Run Growth in Open Economies: Export-Led Cumulative Causation or a Balance-of-Payments Constraint?," Working Papers 2009-23, American University, Department of Economics.
  • Handle: RePEc:amu:wpaper:2009-23
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    References listed on IDEAS

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    Cited by:

    1. Elias Soukiazis & Micaela Antunes, 2013. "Growth Performance in Portugal since the 1960s: A Simultaneous Equation Approach with Cumulative Causation Characteristics," Journal of Economic Issues, Taylor & Francis Journals, vol. 47(1), pages 169-192.
    2. Porcile, Gabriel & de Souza, Alexandre Gomes & Viana, Ricardo, 2011. "External debt sustainability and policy rules in a small globalized economy," Structural Change and Economic Dynamics, Elsevier, vol. 22(3), pages 269-276, September.
    3. Araujo, Ricardo Azevedo & Trigg, Andrew B., 2015. "A neo-Kaldorian approach to structural economic dynamics," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 25-36.
    4. Elias Soukiazis & Pedro Cerqueira & Micaela Antunes, 2013. "Growth rates constrained by internal and external imbalances and the role of relative prices: empirical evidence from Portugal," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(2), pages 275-298.
    5. Mario Cimoli & Gabriel Porcile, 2014. "Technology, structural change and BOP-constrained growth: a structuralist toolbox," Cambridge Journal of Economics, Oxford University Press, vol. 38(1), pages 215-237.
    6. Mark Setterfield, 2010. "Endogenous Growth: A Kaldorian Approach," Working Papers 1001, Trinity College, Department of Economics.
    7. Cimoli, Mario & Porcile, Gabriel, 2011. "Tecnologia, heterogeneidad y crecimiento: una caja de herramientas estructuralista
      [Technology, heterogeneity and Growth: A Structuralist Toolbox]
      ," MPRA Paper 33801, University Library of Munich, Germany.
    8. Ibarra, Carlos A., 2011. "Import elasticities and the external constraint in Mexico," Economic Systems, Elsevier, vol. 35(3), pages 363-377, September.
    9. Soukiazis, Elias & Cerqueira, Pedro André & Antunes, Micaela, 2014. "Explaining Italy's economic growth: A balance-of-payments approach with internal and external imbalances and non-neutral relative prices," Economic Modelling, Elsevier, vol. 40(C), pages 334-341.
    10. Soukiazis, Elias & Cerqueira, Pedro A. & Antunes, Micaela, 2012. "Modelling economic growth with internal and external imbalances: Empirical evidence from Portugal," Economic Modelling, Elsevier, vol. 29(2), pages 478-486.
    11. Arslan Razmi, 2011. "Imposing a balance of payment constraint on the Kaldorian model of cumulative causation," UMASS Amherst Economics Working Papers 2011-28, University of Massachusetts Amherst, Department of Economics.
    12. Emine KILAVUZ & Betül ALTAY TOPCU, 2012. "Export and Economic Growth in the Case of the Manufacturing Industry: Panel Data Analysis of Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 2(2), pages 201-215.
    13. Elias Soukiazis & Eva Muchova, 2012. "Slovak economic growth and the consistency of the balance-of-payments constraint approach," GEMF Working Papers 2012-16, GEMF, Faculty of Economics, University of Coimbra.
    14. repec:eco:journ1:2017-02-71 is not listed on IDEAS
    15. Elias Soukiazis & Pedre André Cerqueira & Micaela Antunes, 2013. "The Effects of Internal and External Imbalances on Italy´s Economic Growth. A Balance of Payments Approach with Relative Prices No Neutral," GEMF Working Papers 2013-14, GEMF, Faculty of Economics, University of Coimbra.
    16. Cimoli, Mario & Fleitas, Sebastian & Porcile, Gabriel, 2011. "Real Exchange Rate and the Structure of Exports," MPRA Paper 37846, University Library of Munich, Germany.
    17. Elias Soukiazis & Pedro Cerqueira & Micaela Antunes, 2012. "Causes of the Decline of Economic Growth in Italy and the Responsibility of EURO. A Balance-of-Payments Approach," GEMF Working Papers 2012-03, GEMF, Faculty of Economics, University of Coimbra.
    18. Elias Soukiazis & Pedro Cerqueira & Micaela Antunes, 2011. "Growth rates constrained by internal and external imbalances: a demand orientated approach," GEMF Working Papers 2011-12, GEMF, Faculty of Economics, University of Coimbra.
    19. repec:voj:journl:v:64:y:2017:i:2:p:139-168 is not listed on IDEAS

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