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An extended structural economic dynamics approach to balance-of-payments constrained growth: level of the real exchange rate and endogenous elasticities

Author

Listed:
  • Fabrício Misso

    (UFMT)

  • Ricardo Araújo Azevedo

    (UNB)

  • Frederico Jayme Jr

    (Cedeplar-UFMG)

Abstract
The aim of this paper is to show that the level of the real exchange rate affects the rate of economic growth. More specifically, we extend the model developed by Araujo and Lima (2007) to derive a balance-of-payments equilibrium growth rate analogous to Thirlwall’s Law based on a Pasinettian multi-sector macrodynamic framework in which income elasticities are endogenous to the level of the real exchange. Furthermore, the model is built to relate growth, the real exchange rate and sectoral heterogeneity. We thus demonstrate the effect of the level of real exchange rates on the generation of technological progress, from a cumulative causation perspective, and how these rates also impact the growth of the whole economy via a balance-of-payments constraint approach. Hence, we show that an undervalued real exchange rate has positive effects on economic growth in developing countries.

Suggested Citation

  • Fabrício Misso & Ricardo Araújo Azevedo & Frederico Jayme Jr, 2013. "An extended structural economic dynamics approach to balance-of-payments constrained growth: level of the real exchange rate and endogenous elasticities," Textos para Discussão Cedeplar-UFMG 499, Cedeplar, Universidade Federal de Minas Gerais.
    • Handle: RePEc:cdp:texdis:td499
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    References listed on IDEAS

    as
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    Cited by:

    1. Hiroshi Nishi, 2019. "Balance‐of‐payments‐constrained cyclical growth with distributive class conflicts and productivity dynamics," Metroeconomica, Wiley Blackwell, vol. 70(4), pages 620-640, November.
    2. Nishi, Hiroshi, 2016. "A multi-sectoral balance-of-payments-constrained growth model with sectoral heterogeneity," Structural Change and Economic Dynamics, Elsevier, vol. 39(C), pages 31-45.
    3. Hiroshi Nishi, 2014. "A Multi-Sectoral Balance-of-Payments-Constrained Growth Model with Sectoral Heterogeneity:International Competition, Productivity Dynamics, and Economic Growth," Discussion papers e-13-005, Graduate School of Economics Project Center, Kyoto University.
    4. Hiroshi Nishi, 2014. "Income Distribution and Economic Growth in a Multi-Sectoral Kaleckian Model," Discussion papers e-14-011, Graduate School of Economics Project Center, Kyoto University.

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    More about this item

    Keywords

    Real exchange rate; cumulative causation; Balance-of-Payments constraint and growth.;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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