Balance-of-payment-constrained growth in unbalanced productive structures: disregarded terms of trade negative effects

Abstract

The aim of this paper is to analyze the relation between foreign asset formation (FAF) and terms of trade (TOT) in countries characterized by unbalanced productive structures (UPS). This is done by modifying the structuralist thesis about the (overstated) positive effects of a rise in TOT on the balance-of-payment equilibrium gross domestic product growth rate. The theoretical analysis follows Thirlwall's law and its subsequent modifications. The paper's main contribution will be to explain and formalize the low-and even null-effects of TOT on balance-of-payment constraints due to the quasi-rent generated in the export sector of a UPS. To reinforce this idea, the empirical section econometrically shows the existence of a significant and positive relationship between TOT and FAF in developing countries.

Some unpleasant currency-devaluation arithmetic in a post Keynesian macromodel

“…A more inclusive model would also take into account contractionary effects of devaluation through an increase in interest rates and external debt, as inBruno (1979) andMédici and Panigo (2015). However, in order to keep the model more tractable and focus on cost composition and income distribution effects, we abstract from these channels.…”

Why Are Keynesian Multipliers Larger in Hard Times? A Palley-Aftalion-Pasinetti Explanation

“…The BOPCG approach reveals that increased activity leading to increased demand for foreign currency due to higher imports impedes growth. This is a consequence of Thirlwall’s (1979) famous law that “the maximum growth rate that BOP-restricted economies can reach is determined by the relation between income elasticities of demand for exports and imports and the exogenous rate of world GDP growth” (Médici and Panigo 2015: 198). These factors clearly justify coordinating countercyclical fiscal policies among countries to limit the negative effects of BOP restrictions on growth and to maximize the values of the multipliers.…”

Impact of International Trade and Trade Duties on Current Account Balance of the Balance of Payment: A study of N-11 Countries

“…The investigation in this article is an attempt to provide even more information upon this concern. Médici and Panigo (2015) analyzed the association of foreign asset formation (FAF) with the terms of trade (TOT) in the nations characterized by unbalanced productive structures (UPS). For the purpose of research monthly data of Argentinean economy from January 2003 to October 2011 has been utilized.…”

“…Currently, there are several studies present related to this topic but according to my knowledge and observation majority of the studies are based on developed countries such as U.S, China, Japan and different American and European countries. For instance Chernyak, Khomiak and Chernyak (2013) investigated the balance of payment crisis in their research about Next-11 Eastern European countries, Weixian (1999) studied the dynamic relationship between China's trade balance and macroeconomic variables, Médici and Panigo (2015) investigated the existence of association in foreign asset formation (FAF) and terms of trade (TOT) with monthly data of Argentina, Pacheco-López (2005) studied the impact of liberalization of trade in the era of mid-1980s pertaining to the liberalization related to the North American Free Trade Agreement (NAFTA) on nonoil exports, imports, and the balance of trade in Mexico, Malhotra, Rus, Kassam (2008) analysed the effectiveness of antidumping (AD) duties pertaining to the agricultural sector of US for restricting trade with data related to U.S.…”