Complutense University Library

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


Garcimartín, Carlos and Rivas, Luis and García Martínez, Pilar (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; nº 05/10, ]


Official URL:


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.

Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Growth, Balance of payments constraint, Exchange rate.
Subjects:Social sciences > Economics > Economic development
Social sciences > Economics > Commerce
Social sciences > Economics > Economic indicators
Series Name:Working Papers
ID Code:10529

Alberola, E.; Cervero, S. G.; López, H.; and Ubide A. “Global Equilibrium Exchange Rates - Euro, Dollar,"Ins," "Outs," and Other Major Currencies in a Panel Cointegration Framework”, IMF Working Papers99/175, 1999, International Monetary Fund.

Alberola, E. and López J. H. “Internal and external exchange rate equilibrium in a cointegration framework:an application to the Spanish peseta”, Spanish Economic Review, 2001, vol.3, n.1, 23-41.

Alonso, J. A, “Growth and the External Constraint: Lessons from the Spanish Case,” Applied Economics,,February 1999, vol. 31, 245-253.

Alonso, J. A. and Garcimartín, C. “A new approach to balance-of-payments-constrained growth model”.Journal of Postkeynesian Economics, 1998, Vol. 21, nº. 2, 259-282.

Antunes, M. and Soukiazis, E., “How well the balance-of-payments constraint approach explains the Portuguesegrowth performance. Empirical evidence for the 1965-2008 Period”, Working Paper nº. 13, 2009,GEMF, Universidade de Coimbra.

Atesoglu, H. S., “Balance of Payments Constrained Growth. Evidence from the United States”. Journal of PostKeynesian Economics, 1993, vol. 15, nº 4, 507-514.

Atesoglu, H. S., “Balance of Payments Determined Growth in Germany”. Applied Economic Letters, 1994,vol. 1, nº 6, 89-91.

Atesoglu, H. S., “An Explanation of the Slowdown in US Economic Growth”, Applied Economics Letters,1995, 2, 91-94.

Bagnai, A., “Structural breaks, cointegration, and the empirics of Thirlwall’s law”, Applied Economics, November2008, 1-15 .

Bairam, E., “Balance of payments, the Harrod foreign multiplier and economic growth: the European andNorth American experience”. Applied Economics, December 1988, nº 20, 1635-1642.

Bairam, E. and Dempster, G., “The Harrod Foreign Trade Multiplier and Economic Growth in Asian Countries”.Applied Economics, November 1991, vol. 23, n.º 11, 1719-1724.

Banco de España, “Una actualización de las funciones de exportación e importación de la economía española”,Boletín Económico, diciembre 2008, Banco de España.

Barrell, R.; Holland, D.; Jakab, Z. M.; Kovacs, M. A.; Smidkova, K.; Sepp, U; and Eufer, U., “An econometricmacro-model of transition: policy choices in the pre-accession period”, in Proceedings of AMFET’2001 Conference– Modelling Economies in Transition, Krag (Poland), Lodz, Absolwent, 2008.

Bennett, H.; Escolano, J.; Fabrizio, S.; Gutiérrez, E.; Ivaschenko, I.; Lissovolik, B.; Moreno-Badia, M.; Schule,W.; Tokarick, S.; Xiao, Y.; and Zarnic, Z., “Competitiveness in the Southern Euro Area: France, Greece, Italy,Portugal, and Spain”, IMF Working Paper, 08/112, 2008.

Blanchard, O., “Adjustment within the euro. The difficult case of Portugal”. Portuguese Economic Journal,April 2007, Vol. 6, No. 1, 1-21.

Britto, G. and McCombie, J. L. S., “Thirlwall's law and the long-term equilibrium growth rate: an applicationto Brazil”. Journal of Post Keynesian Economics, Fall 2009, Volume 32, N° 1, 115-137.

Buisán, A., J.; Caballero C.; and Jiménez, N., “Determinación de las exportaciones de manufacturas en lospaíses de la UEM a partir de un modelo de oferta-demanda”, Boletín Económico, octubre 2003, Banco deEspaña.

Bulir, A. and Smidkova, K., “Exchange rates in the new EU accession countries: what have we learned fromthe forerunners?”, Economic Systems 29, 2005, 163–186.

Carter, R. and Nagar, A. L., “Coefficients of Correlation for Simultaneous Equations Systems”. Journal ofEconometrics, 1977, vol. 6, 39-5022

Elliot, D. R. and Rhodd, R., “Explaining Growth Rate Difference in Highly Indebted Countries: An Extensionto Thirlwall and Hussain”, Applied Economics, 1999, 31, 1145-1148.

Faini, R.; Pritchett, L; and Clavijo, F. “Import Demand in Developing Countries”, World Bank WorkingPaper, 1988, Country Economics Department, Trade Policy.

Gandolfo, G., Qualitative Analysis and Econometric Estimation of Continuous Time Dynamic Models. Amsterdam,North Holland, 1981.

García, C. and Gordo, E., “Funciones trimestrales de exportación e importación para la economía española”.Documentos de Trabajo n.º 9822, 1988, Banco de España.

Garcimartín, C., Rivas, L. and Díaz, S., “Accounting for the Irish growth: a balance-ofpayments-constrintapproach”, Journal of Post Keynesian Economics, 2008, Vol. 30, nº. 3, 409-433.

Hussain, M., “The Balance of Payments Constraint and Growth Rate Differences Among African and EastAsian Economies”, African Development Review, June 1999, 103-137.

Lane, P and Milesi-Ferreti, G., “The external wealth of nations Mark II: Revised and expanded estimates offoreign assets and liabilities, 1970-2004”, IMF Working Paper 06/69, 2006.

McCombie, J., “Thirlwall´s Law and Balance of Payments Constrained Growth—A

Comment on the Debate”, Applied Economics, 1989, 21, 611-629.

McCombie, J. S., “Thirlwall's Law and Balance of Payments Constrained Growth, More on the Debate”, AppliedEconomics, 1992, 5 (1), 611-629.

Martinez-Mongay, C., “Spain and Portugal in the Euro Area: Lessons for Cyprus”, Cyprus Economic PolicyReview, 2008, vol. 2 no. 1, pp. 33-62.

McGregor, P. G. and Swales, J. K., “Professor Thirlwall and Balance of Payments Constrained Growth”, AppliedEconomics, 1985, vol. 17, nº. 5, 17-32.

McGregor, P. G. and Swales, J. K., “Balance of Payments Constrained Growth: A Rejoinder to ProfessorThirlwall”, Applied Economics, 1986, , vol. 18, nº. 12, 1265-1274.

McGregor, P. G. and Swales, J. K., “Thirlwall´s Law and Balance of Payments Constrained Growth: FurtherComment on the Debate”, Applied Economics, 1991, vol. 23, nº. 1, 9-20.

Mauleón, I. and Sastre, L., “El saldo comercial en 1993: un análisis econométrico”, Información ComercialEspañola, 1994, 735, 167-172.

Moreno-Brid, J. C., “On capital flows and the balance-of-payments-constrained growth model”. Journal ofPostkeynesian Economics, 1998, Vol. 21, Nº. 2, 283-298.

Moreno-Brid, J. C., “Capital Flows, Interest Payments and the Balance-of-Payments Constrained GrowthModel: A Theoretical and Empirical Analysis”. Metroeconomica 54, 2003, nº. 2-3, 346-365.

Senhadji, A. and Montenegro, C., “Time Series Analysis of Export Demand Equations: A Cross-CountryAnalysis”, IMF Staff Papers, 1999, Vol. 43, No.3.

Thirlwall, A., “Balance of payments constraint as an explanation of international growth rate differences”.Banca Nazionale del Lavoro Quarterly Review, 1979, 128(1), 45-53.

Thirlwall, A. P. and Hussain, M. N., “The balance of payments constraint, capital flows and growth rate differencesbetween countries”, Oxford Economic Papers, 1982, nº 3, 498-510.

Deposited On:27 Apr 2010 10:16
Last Modified:06 Feb 2014 08:44

Repository Staff Only: item control page