Natural, effective and BOP-constrained rates of growth: Adjustment mechanisms and closure equations
Gabriel Porcile & Danilo Spinola
#2018-003
The interaction between the effective (yE) and the natural rates of
growth (yN) is a central part-implicitly or explicitly addressed-in all
growth models. A stable equilibrium requires these two rates to
converge; otherwise, one or more key macroeconomic variables would be
rising or falling without bounds. In addition, the Keynesian tradition
stressed the key role of the Balance-of-Payments constraint as a
determinant of the equilibrium growth rate in the long run (yBP). This
paper discusses alternative mechanisms through which these three growth
rates converge and relates them to different theoretical approaches to
the determinants of growth. With this objective, we extend the model
suggested by Setterfield (2010) to include the evolution of the
North-South technology gap and the pattern of specialisation as key
components of the Kaldorian productivity regime. The importance of the
National System of Innovation in shaping the learning parameters and
outcomes of the model is stressed, drawing from the Schumpeterian
literature. A successful development strategy may emerge when the NSI
enhances indigenous technological capabilities that allow the South
economy to catch-up with the technological frontier.
Keywords: BOP-constrained growth models, Growth Models, Structural Change, Technological Capabilities
JEL Classification: E12, F43, O30