Growth and the external constraint: lessons from the Spanish case

Abstract

The present article attempts to determine the role played by the balance-of-payments constraint on economic growth in Spain (1960-94), using cointegration techniques. This empirical exercise also serves to reveal some shortcomings in the usual procedures for estimating Thirlwall's Law. In particular, the Spanish case reveals how important it is to introduce a variable that expresses the competitiveness gains generated by improvements in quality of the goods and services into the export function. It also demonstrates the inadequate simplification entailed in an a priori exclusion of relative prices in external equilibrium equation. Not taking these two aspects into consideration may give rise to an erroneous confirmation of Thirlwall's Law, especially if, as in the Spanish case, both effects offset each other. Finally, if the aim is to analyse long-term relationships between variables, it would seem advisable to use procedures, such as cointegration, with variables in levels.

Explaining Firms' Export Behaviour: The Role of R&D and Spillovers

“…OECD ( 1999): Research and development in industry: expenditure and researchers, scientists and engineers, 1976-1997 Non-production workers / total number of workers Skills 2…”

“…Since its accession to the European Community in 1986, Spain has experienced a considerable deterioration in its trade balance as foreign trade and investment were liberalised (see, for example, De la Dehesa et al, 1991;Herce et al, 1998). The low level of international competitiveness of Spanish firms has been blamed as the main factor behind this growing trade deficit (Martin, 2000), which appears to have partially constrained economic growth, as recently shown by Alonso (1999). With ever increasing competition from other European countries, especially in modern industries, an improvement in competitiveness to European efficiency levels and a strong domestic export base remains a high priority among policy makers and economists.…”

Thirlwall's law and the long-term equilibrium growth rate: an application to Brazil

“…And the long run relationship between observed growth rates and those predicted by Thirlwall's Law remains rigorously untested. This is exactly the thesis advocated by Alonso (1999). As an alternative, Alonso proposes the estimation of a long series of growth rates consistent with balance-of-payments equilibrium and testing if this series and that of actual growth rates cointegrate.…”

“…This is, however, only a partial solution. A second and potentially more serious problem stems from biased samples of countries included in the pooled regression, which can lead to the rejection of the balance-of-4 See, for instance, Atesoglu (1993Atesoglu ( , 1994 and Alonso (1999). 5 One way to avoid the influence of short-run fluctuation can be found in Atesoglu (1993-4).…”

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

“…And this was the case for eight of ten countries in the sample. Other works, using cointegration techniques, also have tested for the long-run adjustment of actual income to BoP constrained income (Alonso, 1999;Bagnai, 2008;and Britto and McCombie, 2009), while other studies have explicitly tested the adjustment of income to BoP disequilibria (Garcimartín et al, 2008).…”