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Exploring the Robustness of the Balance of Payments-Constrained Growth Idea in a Multiple Good Framework

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  • Arslan Razmi

    (University of Massachusetts Amherst)

Abstract

This paper derives the balance of payments-constrained growth (BPCG) model as a special case of a three good framework that incorporates exportables, importables, and non-tradables. The conditions under which the canonical form of the BPCG rate can be derived are made explicit and the assumptions scrutinized. It is shown that the presence of non-tradables, substitutability between exportables and importables, and incomplete specialization in expenditure generally dampen the externally-constrained growth rate. These findings help explain why empirical estimates tend to overestimate the BPCG rate. Overall our findings underscore the observation that tests of the BPCG hypothesis are as much a test of the internal structure of the economy under consideration. JEL Categories:

Suggested Citation

  • Arslan Razmi, 2009. "Exploring the Robustness of the Balance of Payments-Constrained Growth Idea in a Multiple Good Framework," UMASS Amherst Economics Working Papers 2009-10, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2009-10
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    3. Jonathan Perraton, 2003. "Balance of Payments Constrained Growth and Developing Countries: An examination of Thirlwall's hypothesis," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(1), pages 1-22.
    4. J.S.L. McCombie & Mark Roberts, 2002. "The Role of the Balance of Payments in Economic Growth," Chapters, in: Mark Setterfield (ed.), The Economics of Demand-Led Growth, chapter 6, Edward Elgar Publishing.
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    Cited by:

    1. Bilge Erten, 2010. "Industrial Upgrading and Export Diversification: A Comparative Analysis of Economic Policies in Turkey and Malaysia," Working Papers id:2778, eSocialSciences.

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