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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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    Cited by:

    1. Ahmad Jafari Samimi & Ramezan Hosseinzadeh, 2011. "Foreign Trade and Economic Growth: Evidence of Thirlwall’s Law in Iran," Journal of Social and Development Sciences, AMH International, vol. 2(2), pages 81-88.
    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. 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.
    4. 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.
    5. Soukiazis, Elias & Cerqueira, Pedro André & Antunes, Micaela, 2014. "Explaining Italy's economic growth: A balance-of-payments approach with internal and external imbalances and non-neutral relative prices," Economic Modelling, Elsevier, vol. 40(C), pages 334-341.
    6. 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.
    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. F.N. Chimphamba & M.K. Wilson, 2022. "The balance-of-payments-constrained growth model for Malawi: Evidence from the bounds testing approach," Journal of Economic Policy and Management Issues, JEPMI, vol. 1(1), pages 50-61.
    9. 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.
    10. 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.

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