Uneven development and the balance of payments constrained model: Terms of trade, economic cycles, and productivity catching-up

Spinola, Danilo (2020) Uneven development and the balance of payments constrained model: Terms of trade, economic cycles, and productivity catching-up. Structural change and economic dynamics, 54. pp. 220-232. ISSN 0954-349X

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Abstract

This paper addresses (I) the transition dynamics incompatibility between the BPCM and the Prebisch-Singer hypothesis (PSH) (II) the causes of cyclical volatility in developing countries. In order to discuss these issues, we expand the Dutt (2002) model adding: (a) a productivity gap dynamics in which the south has a catching-up element; (b) a labor market dynamics, by including a wage curve in the relationship between employment rate and economic activity; and (c) a labor supply dynamics that considers the labor transfer issue between traditional and modern sectors. The result is a four dimensional dynamic model that represents a lagged developing economy constrained by its balance of payments. We find that our model converges and generates damped cycles. Fragile economies show an oscillatory decline in terms of trade, reinforcing an uneven development pattern between north and south. Industrialization and higher learning capabilities, however, can change the adjustment to a catching-up scenario.

Item Type: Article
Identification Number: https://doi.org/10.1016/j.strueco.2020.05.007
Date: 1 September 2020
Uncontrolled Keywords: balance of payments constraints, terms of trade, economic cycles, Latin American structuralism.
Subjects: L100 Economics
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Faculty of Business, Law and Social Sciences > Birmingham City Business School > Centre for Applied Finance and Economics
Depositing User: Danilo Sartorello Spinola
Date Deposited: 27 Jan 2021 10:27
Last Modified: 27 Jan 2021 10:27
URI: http://www.open-access.bcu.ac.uk/id/eprint/10811

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