Demand led growth

2 Posts Back Home

Thirlwall’s Law, External Debt Sustainability and the Balance of Payments Constrained Level and Growth Rates of Output

Thirlwall’s law, given by the ratio of the rate of growth of exports to the income elasticity of imports is a key result of Balance of Payments (BOP) constrained long run growth models with balanced trade. Some authors have extended the analysis to incorporate long run net capital flows. We provide a critical evaluation on these efforts and propose an alternative approach to deal with long run external debt sustainability, based on two key features. First, we treat the external debt to exports ratio as the relevant indicator for the analysis of external debt sustainability. Second, we include an external credit constraint in the form of a maximum acceptable level of this ratio. The main results that emerge are that sustainable long run capital flows can positively affect the long run level of output, but not the rate of growth compatible with the BOP constraint, as exports must ultimately tend…

Patterns of Economic Growth of the Brazilian Economy 1970-2007: Demand led growth under balance of payments constraint

The paper analyses the patterns of economic growth that characterized the huge decline of the Brazilian trend GDP growth rate in the period between 1970 and 2006. The analysis is based on an analytical framework that combines the classical supermultiplier demand led growth model with the hypothesis that the balance of payments is the main potential (and often the effective) constraint to the expansion of the Brazilian economy in the period under consideration.