The Concept of Fundamental Equilibrium

  • M. Panić


It is impossible to discuss international economic issues meaningfully without some idea of the conditions necessary for the relationships between two or more countries to be sustained over a period without — and this is the crux of the matter — changes in existing policies and, in some cases, institutions. In other words, it is essential to have a definition, no matter how broad, of ‘international equilibrium’.


Basic Balance International Equilibrium Internal Balance Current Balance External Balance 
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Notes and References

  1. 1.
    See, for instance, Kindleberger (1969), Veil (1975) and Thirlwall (1980).Google Scholar
  2. 2.
    The concern with financing external imbalances would also disappear if the whole world started to use a common currency. There would be no balance of payments problems in this case, though the adjustment problems would remain. Global monetary union would still raise, therefore, a number of important policy issues in the international economy. These are discussed in Part V.Google Scholar
  3. 3.
    Cooper (1966, p. 384).Google Scholar
  4. 4.
    See Hodjera (1969) and Veil (1975) for comparisons of the relative stability of different measures of the balance of payments.Google Scholar
  5. 5.
    Thirlwall (1980, p. 10).Google Scholar
  6. 6.
    Veil (1975) and IMF (1977).Google Scholar
  7. 7.
    See Nurkse (1947) and, especially, Meade (1951) for a discussion of the need to reconcile internal and external balances, even though their definitions are not exactly the same as that given here.Google Scholar
  8. 8.
    It is far from easy to establish whether an economy is in fundamental equilibrium or not; and it certainly cannot be done on the basis of its performance over one or two years. The judgement can be formed only after examining the relevant data covering at least one full cycle in order to take into account cyclical and seasonal factors, both in the economy and in the rest of the world. Otherwise, it is easy to confuse temporary developments for underlying, fundamental, strengths and weaknesses, and vice versa.Google Scholar
  9. 9.
    Solomon (1982, p. 12).Google Scholar
  10. 10.
    This is, of course, Harrod’s ‘natural rate of growth’ (Harrod, 1948). The term seems, however, much less appropriate than the one used in the text, as there is nothing ‘natural’ either in the long-term growth of labour or in the rate and character of technical progress.Google Scholar
  11. 11.
    Nurkse (1947), Meade (1951).Google Scholar
  12. 12.
    Machlup(1958).Google Scholar
  13. 13.
    Machlup(1973,p. 189).Google Scholar
  14. 14.

Copyright information

© Dr Milivoje Panić 1988

Authors and Affiliations

  • M. Panić
    • 1
  1. 1.Selwyn CollegeCambridgeUK

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