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Balance of Payments Constrained Growth Model: The Case of India

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  • Arslan Razmi

    (University of Massachusetts Amherst)

Abstract

This study applies the Balance of Payments Constrained Growth (BPCG) model to India, a large developing country with a relatively low trade to GDP ratio. Rather than assuming similar elasticities of substitution between goods produced in different regions, the study extends the model to relax these assumptions. Johansen’s cointegration technique is employed to estimate trade parameters. Short-run adjustments are explored within a vector error correction framework. The average growth rates predicted by various forms of the BPCG hypothesis are found to be close to the actual average growth rate over the period 1950-1999, although individual decades display substantial deviations. JEL Categories: F43, F14, E12

Suggested Citation

  • Arslan Razmi, 2005. "Balance of Payments Constrained Growth Model: The Case of India," UMASS Amherst Economics Working Papers 2005-05, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2005-05
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    Cited by:

    1. Keshab Raj Bhattarai, 2016. "Economic Growth and Development in India and SAARC Countries," EcoMod2016 9631, EcoMod.
    2. repec:wsr:wpaper:y:2016:i:164 is not listed on IDEAS
    3. Bruno Jetin & Ozan Ekin Kurt, 2016. "Functional income distribution and growth in Thailand: A post Keynesian econometric analysis," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(3), pages 334-360, July.
    4. Sebastien Charles & Thomas Dallery & Jonathan Marie, 2022. "The slowing of growth in France: an interpretation based on Thirlwall’s law," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 45(1), pages 100-129, January.
    5. Ana Lourdes Morones Carrillo, 2016. "Crecimiento económico en México: restricción por la balanza de pagos," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 39-58, May.
    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. Civcir, Irfan & Panshak, Yohanna & Ozdeser, Huseyin, 2021. "A multi-sectoral balance of payments constrained growth approach with intermediate imports: The case of Nigeria," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 240-250.
    8. 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.
    9. Ricardo Azevedo Araujo & Matheus Silva Paiva & Júlio Fernando Costa Santos, 2019. "The role of intermediate inputs in a multisectoral balance-of-payments-constrained growth model: the case of Mexico," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-24, December.
    10. Özer, Mustafa & Malovic, Marko, 2020. "Ball and chain effect: Is Turkey’s growth rate constrained by current account deficit?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 558(C).
    11. 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.
    12. Zhandos Ybrayev, 2022. "Balance-of-payments-constrained growth model: an application to the Kazakhstan’s economy," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(4), pages 745-767, December.
    13. repec:rim:rimwps:41-07 is not listed on IDEAS
    14. Ferda Halicioglu, 2012. "Balance-of-payments-constrained growth: the case of Turkey," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(1), pages 65-78.
    15. Kvedaras, Virmantas & Garcimartín, Carlos & Astudillo, Jhonatan, 2020. "Balance-of-Payments constrained growth dynamics: An empirical investigation," Economic Modelling, Elsevier, vol. 89(C), pages 232-244.
    16. Blecker, Robert A. & Ibarra, Carlos A., 2013. "Trade liberalization and the balance of payments constraint with intermediate imports: The case of Mexico revisited," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 33-47.
    17. Gökçe, Atilla & Çankal, Erhan, 2013. "Balance-of-payments constrained growth model for the Turkish economy," Economic Modelling, Elsevier, vol. 35(C), pages 140-144.
    18. Carlos A. Ibarra & Robert A. Blecker, 2016. "Structural change, the real exchange rate and the balance of payments in Mexico, 1960–2012," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(2), pages 507-539.
    19. Mohammed Al- Mahish, 2017. "Does Balance of Payments Constrained Growth Model Hold in Saudi Arabia?," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 2(1), pages 1-15, March.
    20. Yohanna Panshak & Irfan Civcir & Hüseyin Ozdeser, 2019. "Technology Gap and the Role of National Innovation System in a Balance of Payments Constrained Growth Model: Empirical Evidence From Nigeria," SAGE Open, , vol. 9(1), pages 21582440198, February.
    21. Mini P. Thomas, 2016. "Impact of services trade on India’s economic growth and current account balance: evidence from post-reform period," Working Papers 2016/11, Maastricht School of Management.
    22. Mark Holmes & Theodore Panagiotidis & Abhijit Sharma, 2011. "The sustainability of India's current account," Applied Economics, Taylor & Francis Journals, vol. 43(2), pages 219-229.
    23. Maria Carolina Basso, 2016. "A Economia Brasileira Sob Restrição Do Balanço De Pagamentos: Uma Análise Empírica Da Lei De Thirlwall No Boom Das Commodities," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42nd Brazilian Economics Meeting] 089, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    24. Edgar Demetrio Tovar-Garcia & Carlos A. Carrasco, 2019. "The Balance of Payments and Russian Economic Growth," HSE Economic Journal, National Research University Higher School of Economics, vol. 23(4), pages 524-541.
    25. Advait Moharir & Arjun Jayadev & J.W. Mason, 2023. "Decomposing India's Trade Ratio: 1980–2021," Development and Change, International Institute of Social Studies, vol. 54(6), pages 1425-1451, November.

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    More about this item

    Keywords

    Balance of payments-related constraints; real exchange rates; Johansen’s cointegration technique; strong form; weak form; trade multiplier; import compression.;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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