New advances and controversies in the framework of balance‐of‐payments‐constrained growth

Abstract

This article surveys selected recent contributions and debates regarding fundamental aspects of the theory of balance-of-payments-constrained growth (BPCG). The survey focuses mainly on studies, from roughly the period since 2010, in four broad (and related) areas: whether and how relative prices and the real exchange rate affect export performance and long-run growth; the role of endogenous technological progress; the causes and consequences of structural change; and the dynamics of adjustment toward (or cycles around) a long-run growth equilibrium with a balance-of-payments constraint. The discussion also highlights the increasing incorporation of insights from other theoretical traditions (Kaleckian, Kaldorian, Schumpeterian, Goodwinian, and structuralist) into the BPCG framework. The survey suggests the need to clarify the underlying assumptions and policy implications of the BPCG model and to complement its focus on long-run growth rates with analyses of medium-run adjustments and level effects.

Growth and Distribution Regimes Under Global Value Chains: Diversification, Integration and Uneven Development

“…In the long run of the original BPCM model, there are no price-effects, so that 𝑃 ̂= 0 and 𝑞 ̂= 0, and no long-term effect of financial flows 𝐹 ̂= 0. This leads to what is well known in the literature as the Thirlwall's law (Thirlwall, 1979;Blecker, 2021):…”

“…Countries, especially in the developing world, are shown to be constantly constrained by their balance of payments (Jayme, 2020;Blecker, 2021), which is a central issue for a stable development process. In order to address that, our proposed model starts from the role of external constraints in limiting (and defining) the growth possibilities of a country (Thirlwall, 1979).…”

Analytical political economy: Complexity, growth, international trade

“…The second group of papers survey recent literatures broadly related to the process of growth and development, each with a specific emphasis. Blecker (2022) and Demir and Razmi (2022) focus on international trade by studying, respectively, the roles that the balance of payment and the real exchange rate (RER) play in shaping long run‐growth and structural change; Barrales‐Ruiz et al. (2022) analyze the cyclical relation between functional income distribution and economic activity; and Itaman (2022) discusses the finance‐growth nexus.…”

“…The four surveys fit our definition of Analytical Political Economy as they review contributions that question one or more elements of the standard supply-side neoclassical representation of the determinants of capital accumulation and productivity growth. In fact, Keynes's (1936) principle of effective demand and its generalization to the long-run are present in different ways in the literatures reviewed by Blecker (2022), Demir and Razmi (2022), and Barrales-Ruiz et al (2022). On the other hand, Itaman's (2022) account of the finance growth nexus is shaped by both the Keynesian notion of money and the classical political economy debate on the productiveness of finance.…”

“…They also show that RER overvaluations tend to have the opposite effect, slowing down growth. Blecker (2022) surveys the most recent developments in the theory of balance-of-paymentsconstrained growth (BPCG). First developed by Thirlwall (1979), the theory's starting point is that balanced trade, or a sustainable rate of net capital inflows, constrains long-run growth for most countries.…”