Critiques and Defences of the Balance-of-Payments Constrained Growth Model
The model of balance-of-payments constrained growth put forward in Chapter 3 has generated a lively debate, particularly between Messrs McGregor and Swales and ourselves in the pages of Applied Economics. We reproduce here (with minor corrections and changes for consistency of style) the first four papers in full (McGregor and Swales, 1985, 1986; Thirlwall, 1986b; and McCombie, 1989). McGregor and Swales (1991) subsequently presented yet a third version of their critique, largely in response to McCombie (1989). While we do not reproduce their latest paper here, we do briefly address the more important issues that they raise. We also consider the arguments put forward by Crafts (1988, 1990) (following Balassa, 1979) that if the income elasticity of demand for exports is measured ‘correctly’, the UK’s growth rate cannot be considered to be demand constrained by the balance of payments, but supply constrained. Finally, we discuss Krugman’s (1989) neoclassical view that it is relative growth rates that determine relative income elasticities rather than the other way around.
KeywordsReal Exchange Rate Income Elasticity Advanced Country Relative Prex World Income
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