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Investments, balance of payment equilibrium and a new industrial policy in Europe

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  • Riccardo Cappellin

Abstract

This paper aims to indicate that an economic recovery of the European economy can be pulled by an increase of the aggregate demand and by the adoption of a new industrial policy having a territorial dimension. While the Domar's and Thirlwall's model indicates that growth is determined by the growth of exports and does not consider investments, the paper indicates that an appropriate distribution of investments between the exporting and the domestic sector can determine both an increase of GDP and an equilibrium of the balance of payment. The model of innovation and investment pulled growth illustrated in the paper, indicates that a greater immaterial investment in R&D, education and project design and planning leads to greater innovation; this latter is the factor leading to an increase of the propensity to invest by the firms and then the investment leads to an increase of GDP, which may be compatible with the constraint of the equilibrium of the balance of payment. The paper clarifies the specific characteristics of the domestic goods and services, such as those of: housing, mobility, health and education, leisure and culture, energy and environment, which aim to respond to the increasing needs by the European citizens of new goods and services and better infrastructures, especially in the largest European cities. A new industrial policy differs from horizontal policies aiming to enhance the supply of the production factors or by the traditional industrial policies focusing on key technologies and sectors or on selected leading companies and should be pulled by the demand and innovation and be organized according to the new markets (lead-markets) and productions, which are emerging in developed countries notwithstanding the current slow growth. JEL Codes: E14, L52, O14, O18, O33, Keywords: balance of payment, investment, innovation, industrial structure, industrial policies, macroeconomic policies

Suggested Citation

  • Riccardo Cappellin, 2016. "Investments, balance of payment equilibrium and a new industrial policy in Europe," ERSA conference papers ersa16p931, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa16p931
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    References listed on IDEAS

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    1. Markusen, Ann, 2007. "A Consumption Base Theory of Development: An Application to the Rural Cultural Economy," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 36(01), pages 1-15, April.
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    6. Anthony Philip Thirlwall, 2012. "Balance of Payments Constrained Growth Models: History and Overview," Palgrave Macmillan Books, in: Elias Soukiazis & Pedro A. Cerqueira (ed.), Models of Balance of Payments Constrained Growth, chapter 1, pages 11-49, Palgrave Macmillan.
    7. Riccardo Cappellin & Rüdiger Wink, 2009. "International Knowledge and Innovation Networks," Books, Edward Elgar Publishing, number 13503.
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    Keywords

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    JEL classification:

    • E14 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Austrian; Evolutionary; Institutional
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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