On the Role of Relative Prices and Capital Flows in Balance-of-Payments Constrained Growththe Experiences of Portugal and Spain in the Euro Area
- Garcimartín Alférez, Carlos Eugenio
- Rivas Herrero, Luis A.
- García Martínez, Pilar
ISSN: 2339-9570
Year of publication: 2010
Issue: 5
Type: Working paper
More publications in: Documentos de trabajo = Working Papers ( Instituto Complutense de Estudios Internacionales ): Nueva época
Abstract
Broadly speaking, the balance-of-payments constraint hypothesis as developed by Thirlwall has been empirically supported. Yet, it shows some shortcomings highlighted in the literature. In our opinion, two of them must be analysed. First, temporary disequilibria and capital flows must be incorporated into the balance-of-payments constrained growth models. Second, the role of relative prices must be made explicit, since it can be relevant even in an external constraint framework. This study is aimed at developing a model that incorporates both possibilities: temporary external disequilibria and a the impact of relative prices. This model is subsequently used to analyse the evolution of the Spanish and Portuguese economies in last decades, and, in particular, the different path shown by both countries since their accession to the Eurozone.