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Slovak economic growth and the consistency of the balance-of-payments constraint approach

Author

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  • Elias Soukiazis

    () (GEMF and Faculty of Economics, University of Coimbra, Portugal)

  • Eva Muchova

    (Faculty of National Economy, University of Economics in Bratislava, Slovakia)

Abstract

The present study aims at verifying whether the balance-of-payments constrained growth approach is suitable for explaining the Slovak growth performance after its peaceful separation from the former Czechoslovakia in 1993. We use Thirlwall´s Law to predict actual growth of the Slovak economy based on the estimation of the income elasticities of demand for imports and exports, respectively. The income elasticity of demand for imports is obtained by employing 2SLS assuming that domestic income is endogenous. It is shown that the Slovak economy grew at a higher rate than the rate consistent with the balance-of-payments equilibrium at the cost of accumulating current account deficits. A sustainable solution should be focused on reducing the income elasticity of the demand for imports and increasing exports growth. In order the country not to fall into a balance-of-payments constrained growth trap policies must be designed to reduce the country´s dependence on imports by producing higher quality tradable goods.

Suggested Citation

  • 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.
  • Handle: RePEc:gmf:wpaper:2012-16
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    File URL: http://gemf.fe.uc.pt/workingpapers/pdf/2012/gemf_2012-16.pdf
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    References listed on IDEAS

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    1. H. Sonmez Atesoglu, 1993. "Balance-of-Payments-Constrained Growth: Evidence from the United States," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 15(4), pages 507-514, July.
    2. Elias Soukiazis & Micaela Antunes, 2011. "Application of the balance-of-payments-constrained growth model to Portugal, 1965-2008," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(2), pages 353-380.
    3. 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.
    4. 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.
    5. Nelson H. Barbosa-Filho, 2001. "The balance-of-payments constraint:from balanced trade to sustainable debt," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 54(219), pages 381-400.
    6. 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.
    7. H. Sonmez Atesoglu, 1995. "An explanation of the slowdown in US economic growth," Applied Economics Letters, Taylor & Francis Journals, vol. 2(4), pages 91-94.
    8. repec:pje:journl:article1982sumv is not listed on IDEAS
    9. Juan Carlos Moreno-Brid, 1999. "On Capital Flows and the Balance-of-Payments-Constrained Growth Model," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 21(2), pages 283-298, January.
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    Citations

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    Cited by:

    1. Peter Leško & Elias Soukiazis & Eva Muchova, 2016. "Are the transition economies balance-of-payments constrained? An aggregate and multi-sector approach applied to Central and Eastern Europe," GEMF Working Papers 2016-04, GEMF, Faculty of Economics, University of Coimbra.
    2. Elias Soukiazis & Eva Muchova & Pedro A. Cerqueira, 2014. "Is the Slovak Economy Doing Well? A Twin Deficit Growth Approach," GEMF Working Papers 2014-08, GEMF, Faculty of Economics, University of Coimbra.
    3. Soukiazis, Soukiazis & Antunes, Micaela & Stoian, Andreea, 2015. "The effects of internal and external imbalances on Romanian’s economic growth," MPRA Paper 63558, University Library of Munich, Germany.
    4. Elena Spasova, 2016. "Balance-of-payments constraints on Bulgarian economic growth," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 90-108.

    More about this item

    Keywords

    balance-of-payments equilibrium growth rate; price and income elasticities of foreign trade; 2SLS regressions.;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • 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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