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Causes of the decline of economic growth in Italy with special reference to the post-euro period: a balance-of-payments approach

Author

Listed:
  • Elias Soukiazis

    (University of Coimbra and GEMF, Portugal)

  • Pedro André Cerqueira

    (University of Coimbra and GEMF, Portugal)

  • Micaela Antunes

    (University of Coimbra and GEMF, Portugal)

Abstract

The aim of this paper is to investigate the causes of the poor growth performance in Italy and the responsibility of the euro for this crisis. The theoretical approach applied is based on the balance-of-payments constraint hypothesis (known as Thirlwall's law), adapted to include internal and external imbalances. Our empirical analysis shows that both the extended model and the original Thirlwall's law over-predict the actual growth in Italy, suggesting that there are supply constraints that impede the economy from growing faster. Another conclusion is that part of the decline in economic growth is explained by the loss of competiveness during the euro period. A scenario analysis shows that a budget deficit and public debt discipline aiming at achieving the goals of the Stability Pact are not significant stimuli for faster growth. On the other hand, reducing the import dependence of the components of demand, or reducing the import and increasing the export shares in the economy, are the most effective policies for fostering growth in Italy.

Suggested Citation

  • Elias Soukiazis & Pedro André Cerqueira & Micaela Antunes, 2015. "Causes of the decline of economic growth in Italy with special reference to the post-euro period: a balance-of-payments approach," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(4), pages 491—516-4, October.
    • Handle: RePEc:elg:rokejn:v:3:y:2015:i:4:p491-516
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    More about this item

    Keywords

    internal and external imbalances; import elasticities of the components of demand; equilibrium growth rates; 3SLS system regressions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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