New Measurement Tools of the External-Constrained Growth Model, with Applications for Latin America

Summary

In the spirit of the New Tools perspective, this paper presents an overview that identifies the main changes in the measurement toolkit that have been used to test the empirical adequacy of the balance of payments constrained growth model (BPC-model) for comparative macroeconomic analysis as well as for the study of the long-term constraints on economic growth. It takes into account the BPC-model in its initial formulation, as put forward by A.P. Thirlwall nearly three decades ago, as well as in its recent developments introduced to account for alternative definitions of long-term equilibrium. It shows how the theoretical revisions of the BPC-model have been accompanied by a sophistication of its empirical testing techniques, better suited for the applied analysis of long-term economic relations. In addition, the toolkit currently used within this analytical perspective is illustrated with data for the Mexican economy, based on a version of the BPC-model that explicitly focuses on the relevance of the influence of interest payments on the economys long-term external equilibrium. The paper ends with some comments on the policy implications that may be derived from the application of the BPC-model, with special reference to the case of Latin America.

Comments by Julio López, Esteban Pérez, Martín Puchet, and Lionello Punzo are gratefully acknowledged. The third section of this paper is based on Moreno-Brid (2003). The opinions here expressed may not necessarily coincide with those of the United Nations.