IDEAS home Printed from https://ideas.repec.org/h/pal/palchp/978-1-137-02395-7_6.html
   My bibliography  Save this book chapter

Growth Rates Constrained by Internal and External Imbalances: A Demand-Orientated Approach

In: Models of Balance of Payments Constrained Growth

Author

Listed:
  • Elias Soukiazis
  • Pedro André Cerqueira
  • Micaela Antunes

Abstract

Thirlwall’s Law considers that growth can be constrained by the balance of payments when the current account is in permanent deficit.* The law focuses on external imbalances as impediments to growth and does not consider the case where internal imbalances (budget deficits or public debt) can also constrain growth. The recent European public debt crisis shows that when internal imbalances are out of control they can constrain growth and domestic demand in a severe way. The aim of this chapter is to fill this gap by developing a growth model in line with Thirlwall’s Law that takes into account both internal and external imbalances. The model is tested for Portugal, which in 2010 fell into a public debt crisis with serious negative consequences on growth. The empirical analysis shows that the growth rate in Portugal is in fact balance of payments constrained and the main drawback is the high import elasticity of the components of demand and in particular that of exports.

Suggested Citation

  • Elias Soukiazis & Pedro André Cerqueira & Micaela Antunes, 2012. "Growth Rates Constrained by Internal and External Imbalances: A Demand-Orientated Approach," Palgrave Macmillan Books, in: Elias Soukiazis & Pedro A. Cerqueira (ed.), Models of Balance of Payments Constrained Growth, chapter 5, pages 144-167, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-02395-7_6
    DOI: 10.1057/9781137023957_6
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Juan Carlos Moreno-Brid, 1998. "On Capital Flows and The Balance-of-Payments-Constrained Growth Model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 21(2), pages 283-298, December.
    2. 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.
    3. Micaela Antunes & Elias Soukiazis, 2009. "How well the balance-of- payments constraint approach explains the Portuguese growth performance: empirical evidence for the 1965-2008 period," GEMF Working Papers 2009-13, GEMF, Faculty of Economics, University of Coimbra.
    4. A. P. Thirlwall, 2007. "Regional Problems are "Balance-of-Payments" Problems," Regional Studies, Taylor & Francis Journals, vol. 41(sup1), pages 89-95.
    5. J. S. L. McCombie & A. P. Thirlwall, 1994. "Economic Growth and the Balance-of-Payments Constraint," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-23121-8, October.
    6. 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.
    7. 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.
    8. Penélope López & A. Thirlwall, 2006. "Trade liberalization, the income elasticity of demand for imports, and growth in Latin America," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(1), pages 41-61.
    9. 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.
    10. 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.
    11. A. P. Thirlwall, 1982. "The Harrod Trade Multiplier And The Importance Of Export-Led Growth," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 1(1), pages 1-21.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Torój, Andrzej & Bednarek, Elżbieta & Bęza-Bojanowska, Joanna & Osińska, Joanna & Waćko, Katarzyna & Witkowski, Dariusz, 2012. "EMU: the (post-)crisis perspective. Literature survey and implications for the euro-candidates," MF Working Papers 12, Ministry of Finance in Poland, revised 06 Mar 2012.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. 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.
    3. 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.
    4. Elias Soukiazis & Micaela Antunes & Ioannis Kostakis, 2018. "The Greek economy under the twin-deficit pressure: a demand orientated growth approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 32(2), pages 215-236, March.
    5. 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.
    6. Elias Soukiazis & Micaela Antunes & Ioannis Kostakis, 2018. "The Greek economy under the twin-deficit pressure: a demand orientated growth approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 32(2), pages 215-236, March.
    7. 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.
    8. Irfan Civcir & M. Emir Yücel, 2020. "Effects of Internal and External Imbalances and the Role of Relative Prices on Economic Growth: Evidence From Turkey," SAGE Open, , vol. 10(2), pages 21582440209, June.
    9. Luciano Nakabashi, 2010. "Thirlwall ou Solow? Uma análise para a economia brasileira entre 1947 e 2008," Working Papers 0110, Universidade Federal do Paraná, Department of Economics.
    10. A. P. Thirlwall, 2013. "Economic Growth in an Open Developing Economy," Books, Edward Elgar Publishing, number 15208.
    11. 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.
    12. Ricardo Azevedo Araujo & Gilberto Tadeu Lima, 2007. "A structural economic dynamics approach to balance-of-payments-constrained growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 31(5), pages 755-774, September.
    13. 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.
    14. Nelson H. Barbosa-Filho, 2001. "The balance-of-payments constraint:from balanced trade to sustainable debt," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 54(219), pages 381-400.
    15. Gustavo Britto & João Prates Romero, 2011. "Modelos kaldorianos de crescimento e suas extensões contemporâneas," Textos para Discussão Cedeplar-UFMG 449, Cedeplar, Universidade Federal de Minas Gerais, revised Jul 2013.
    16. Raphael Rocha Gouvea & Gilberto Tadeu Lima, 2010. "Structural change, balance-of-payments constraint, and economic growth: evidence from the multisectoral Thirlwall's law," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 33(1), pages 169-204, October.
    17. Penelope Pacheco-Lopez & A.P. Thirlwall, 2005. "Trade Liberalisation, the Balance of Payments and Growth in Latin America," Studies in Economics 0506, School of Economics, University of Kent.
    18. Vidal Alejandro, Pavel & Fundora Fernández, Annia, 2008. "Trade-growth relationship in Cuba: estimation using the Kalman filter," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    19. Ziesemer, Thomas, 2022. "Linking the BOPC growth model with foreign debt dynamics to the goods and labour markets," MERIT Working Papers 2022-029, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    20. Nelson H. Barbosa Filho, 2004. "Growth, exchange rates and trade in Brazil: a structuralist post-Keynesian approach," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 14(2), pages 59-86, May-Augus.

    More about this item

    Keywords

    Current Account; Public Debt; Income Elasticity; Nominal Interest Rate; Annual Percentage Change;
    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:palchp:978-1-137-02395-7_6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.