Balance-of-Payments Constrained Growth Model: The Brazilian Case over the Period 1980–2011
This chapter seeks to verify empirically whether the Brazilian growth over the last three decades is balance-of-payments constrained or not. In order to accomplish such a task, we shall base our theoretical analysis on the Balance-of-Payments Constrained Growth Model (BPC) first developed by Thirlwall in 1979. Thirlwall’s Law claims that the home country growth compatible with the current account balance is essentially determined by its exports growth rate and its income elasticity of demand for imports ratio. Provided a constant elasticities ratio over time, in the end what we really want to evaluate is if there is any long-term relation between the Brazilian growth rate and its exports growth rate during the given period. Wherefore, we will test the cointegration hypothesis, that is, the long-run relation aforementioned, through both Johansen and Engle-Granger techniques.
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