We analyze exchange rate and balance of payment crisis constraints when multilateral development banks (MDBs) lend, in hard currency, to national development banks (NDBs), for NDBs to onlend to ...investment projects. Investment projects may be “export-enhancing” (EXIPs), which generate hard currency, or “domestic-oriented” (DOIPs), which do not generate hard currency. To increase the proportion of onlending to DOIPs, MDBs should increase their refinancing to NDBs. Furthermore, MDBs have to reduce the interest rate charged on NDBs. In addition, high return EXIPs need to be financed, and more locally-produced supplies, in contrast with imported supplies, should be fostered.
•Multilateral development banks lend to national ones to finance investment projects.•Hard-currency onlending may incur exchange rate risk and balance of payment crises.•We need discern export-enhancing projects from those that cannot promote exports.•With ample USD liquidity the ratio of export-enhancing projects is freely chosen.•Without ample USD liquidity the ratio hinges on refinancing, interest rates, etc.
Abstract
External conditions have historically influenced economic outcomes and have also impacted political institutions in developing countries. Focusing on these changes, this article develops a ...theoretical model of political conflict and democratic stability in a small open developing economy, using as the basis a structuralist macroeconomic model. In this model, political institutions are given in the medium run but vary in the long run as a result of political conflict between capitalists, formal workers, and informal workers excluded from the benefits of social protection. The model suggests that a democratic breakdown is more likely the larger the informal sector, the lower the structural competitiveness of the economy, and the weaker the country’s democratic tradition. The model also links the possibility of coups and democratization process with external shocks. Based mainly on the Latin American experience in democratic and dictatorial regimes, the article claims that combining industrial and technological policies—which ease the Balance-of-Payments constraint—with the building of a comprehensive system of social protection is key for the consolidation and stability of democracy.
Considering the constraints to growth derived from the balance of payments and the external sector as the area in which the dependency of Latin American countries is most clearly expressed, ...application of the contributions of dependency theorists concerning external restrictions to growth in Argentina shows that the fate of surplus value in this economy is a key factor in the explanation of its dependent nature.
Considerando las restricciones al crecimiento derivadas del balance de pagos y el sector externo como el ámbito donde se expresa más nítidamente la relación de dependencia, la aplicación de los aportes de la teoría de la dependencia referentes al problema de la restricción externa al crecimiento en la Argentina muestra que el destino que se le da al plusvalor en esta economía es un elemento clave para explicar su situación de dependencia.
This paper discusses the implications of Brexit for both the UK and its regions, as the latter depends on the former. We concentrate on the forecasts by Her Majesty's Treasury (HMT), the Cambridge ...Centre for Business Research and the Economists for Brexit. It is argued that the estimates of HMT of the loss of GDP are likely to be overstated, but, nevertheless, there will probably be a fall in output. Given this, the effect on the UK regions is analysed using the regional balance‐of‐payments constrained growth model. This suggests that Brexit will cause regional disparities to widen.
Resumen
Este artículo discute las implicaciones de Brexit para el Reino Unido y sus regiones, ya que estas últimas dependen del Reino Unido. El artículo se concentra en los pronósticos del Tesoro de Su Majestad (HMT, por sus siglas en inglés), del Cambridge Center for Business Research y de Economists for Brexit. Aunque se argumenta que es probable que las estimaciones de HMT de la pérdida del PIB sean exageradas, en cualquier caso es probable que haya una caída en la producción. Debido a esto, se analizó el efecto sobre las regiones del Reino Unido mediante el modelo de crecimiento restringido de la balanza regional de pagos. Esto sugiere que Brexit causará una ampliación de las disparidades regionales.
抄録
本稿では、地域が国に依存しているものとして、イギリスとその地域の双方にとってのブレグジッド(Brexit:イギリスのEU離脱)の意義を考察する。本稿では、女王陛下の大蔵省(Her Majesty's Treasury:HMT)、ケンブリッジ大学ビジネスリサーチセンター、Economists for Brexitの予測結果に絞って注目する。HMTが推算したGDPの損失額は過大であると言われているが、それでもやはり、ほぼ間違いなく生産が減少すると考えられる。これを踏まえて、地域のbalance‐of‐payments constrained growth model(国際収支制約成長モデル)を用いてイギリスの地域に対する影響を分析する。結果からブレグジッドは地域格差を更に拡大することが示唆される。
•We rely on a multi-sectoral balance-of-payments constrained growth model that incorporates intermediate imports.•We explicitly incorporate the effects of intermediate imports and relative prices ...into the analysis.•The outcome of the study shows that the multi-sectoral balance-of-payments constrained growth model correctly predicts Turkey's growth path.•Heightened dependence on imported intermediates, resulting in a reduction in the income elasticity of export demand and an elevation in the income elasticity of import demand, could potentially exert adverse effects on the overall economic growth.•Countries, like Turkey, can benefit from increasing the usage of available domestic inputs in export production to reduce leakage occasioned by the extensive importation of foreign factor inputs.
Several countries rely heavily on imported intermediate inputs for the manufacturing of their exported goods. Understanding the implications of this reliance on a country's growth performance is vital. To address this issue, we conducted an in-depth analysis using the multi-sectoral balance-of-payments constrained growth model with data from Turkey spanning 1970 to 2019. We used the autoregressive distributed lag method to estimate sectoral export, final import, intermediate goods import, and total import demand functions for five technology-based sectors. Subsequently, we calculated growth rates using the multi-sectoral balance of payments constrained growth models, factoring in the estimated income and price elasticities, as well as the respective sectoral shares in total exports, total imports, total final imports, and total intermediate goods imports. Our results demonstrate that the multi-sectoral balance of payments constrained growth model, which incorporates the impact of imported intermediate goods, successfully predicts Turkey's growth path. The findings indicate that structural changes in the production process and the use of imported intermediate inputs have a positive impact on exports. However, Turkey's significant dependence on imported intermediate goods during the production process leads to a decrease in the multi-sectoral balance of payments constrained growth rate.
This article models the process of structural transformation and catching‐up in a demand‐led Southern economy constrained by its balance of payments. Starting from the Sraffian Supermultiplier Model, ...we model a dual‐sector small open economy with a traditional and a modern sector that interacts with a technologically advanced Northern economy. We propose two (alternative) autonomous elements that define the growth rate of this demand‐led economy: government spending and exports. Drawing from the Structuralist literature, productivity in the technologically laggard Southern economy grows by absorbing technology from the Northern economy, by both embodied and disembodied spillovers, and potentially closing the technology gap. The gap affects the income elasticity of exports, bringing a supply‐side mediation to the growth rates in line with the Balance of Payments Constrained Model. We observe that a demand‐led government policy plays a central role in structural change, pushing the modern sector to a larger share of employment than what results under export‐led growth. Such a demand policy is the only way in which partial catching up (in productivity and GDP per capita) can result, and this is facilitated by a global market place in which the balance of payments constraint is relatively soft.
•The expansion model converges to the steady state, maintaining, in the long-run, the price neutrality argument.•In an addition to the monotonic convergence of the Dutt (2002) model, the expansion ...model reproduces damped cycles, with terms of trade and economic growth cyclically converging in the long-run.•From the model baseline and scenarios, increases in industrialization and learning efforts generate a pattern with higher growth, increases in the terms of trade, and reduction in the technology gap.•A virtuous catching-up strategy raises volatility when compared to a stagnated economy, this rise in volatility is also present when observed the case of a falling behind scenario.•Growth reduces or increases in the long run depending on the functional income distribution and on the terms of trade, both depending also on technology catching-up and on the employment rate.•We suggest an intermediary medium-run in which the decline of the terms of trade is valid, even if it converges in the long-run, and at the same time the price effects are not neutral to the medium-run equilibrium growth rate. Then it is possible for both the PSH and the BPCM arguments to hold.
This paper addresses (I) the transition dynamics incompatibility between the BPCM and the Prebisch-Singer hypothesis (PSH) (II) the causes of cyclical volatility in developing countries. In order to discuss these issues, we expand the Dutt (2002) model adding: (a) a productivity gap dynamics in which the south has a catching-up element; (b) a labor market dynamics, by including a wage curve in the relationship between employment rate and economic activity; and (c) a labor supply dynamics that considers the labor transfer issue between traditional and modern sectors. The result is a four dimensional dynamic model that represents a lagged developing economy constrained by its balance of payments. We find that our model converges and generates damped cycles. Fragile economies show an oscillatory decline in terms of trade, reinforcing an uneven development pattern between north and south. Industrialization and higher learning capabilities, however, can change the adjustment to a catching-up scenario.
The balance-of-payments-constrained growth (BPCG) model provides an interesting hypothesis regarding economic growth. The main implication is that world demand places the dominant constraint to which ...individual country growth adjusts. I discuss this implication and argue that tests of the BPCG model have essentially been tests of the hypothesis that trade is balanced over the long run; a plausible hypothesis but one that need not hold mainly through responses to world demand (as transmitted via income elasticities). I then discuss the role of relative prices and investment, point out logical inadequacies in the traditional BPCG framework and suggest an alternative theoretical framework to investigate its robustness. Our theoretical and empirical explorations suggest that traditional tests of the BPCG model may be misleading. Including investment as a proxy for the capacity to export and addressing endogeneity issues, for example, noticeably weakens the influence of world demand. The evidence presented contributes to reconciling evidence supporting the BPCG hypothesis with recent work that consistently finds an important role for the level of the real exchange rate and investment, independently of world demand.
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