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On the Role of Relative Prices and Capital Flows in Balance-of-Payments Constrained Growth: the Experiences of Portugal and Spain in the Euro Area

Author

Listed:
  • Carlos Garcimartín

    () (Universidad Rey Juan Carlos)

  • Luis Rivas

    () (IE University)

  • Pilar García Martínez

    () (Universidad de Salamanca)

Abstract

Broadly speaking, the balance-of-payments constraint hypothesis as developed by Thirlwall has been empirically supported. Yet, it shows some shortcomings highlighted in the literature. In our opinion, two of them must be analysed. First, temporary disequilibria and capital flows must be incorporated into the balance-of-payments constrained growth models. Second, the role of relative prices must be made explicit, since it can be relevant even in an external constraint framework. This study is aimed at developing a model that incorporates both possibilities: temporary external disequilibria and a the impact of relative prices. This model is subsequently used to analyse the evolution of the Spanish and Portuguese economies in last decades, and, in particular, the different path shown by both countries since their accession to the Eurozone.

Suggested Citation

  • Carlos Garcimartín & Luis Rivas & Pilar García Martínez, 2010. "On the Role of Relative Prices and Capital Flows in Balance-of-Payments Constrained Growth: the Experiences of Portugal and Spain in the Euro Area," Working Papers del Instituto Complutense de Estudios Internacionales 1005, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
  • Handle: RePEc:ucm:wpaper:1005
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