Demand-led Industrialisation Policy in a Dual-Sector Small Balance of Payments Constrained Economy

Nomaler, Önder and Spinola, Danilo and Verspagen, Bart (2022) Demand-led Industrialisation Policy in a Dual-Sector Small Balance of Payments Constrained Economy. Working Paper 18. Centre for Applied Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University. (Submitted)

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Abstract

This article models the process of structural transformation and catching-up in a demand-led Southern economy constrained by its balance of payments. Starting from the Sraffian Supermultiplier Model, we model a dual-sector small open economy divided between traditional and modern sectors that interacts with a technologically advanced Northern economy. We propose two (alternative) autonomous elements that define the growth rate of this demand-led economy: government spending and exports. Autonomous government spending plays a central role in stimulating demand, and thus is a source of growth of the modern sector. Productivity adjusts to the growth rate of output, given by the growth rate of autonomous expenditure. Drawing from the Structuralist literature, the technologically laggard Southern economy catches up by absorbing technology from the Northern economy, potentially closing the technology gap. The gap affects the income elasticity of exports, bringing a supply-side mediation to the growth rates in line with the Balance of Payments Constrained Model. We observe that a demand-led government policy plays a central role in structural change, pushing the modern sector to a take-off. Also, the economy is stable in terms of capacity utilisation and modern sector employment.

Item Type: Monograph (Working Paper)
Identification Number: 18
Dates:
DateEvent
23 March 2022Published
Uncontrolled Keywords: Industrialisation, Catching-up, Balance of Payments, Sraffian Supermultiplier
Subjects: CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School > Centre for Applied Finance and Economics
Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Depositing User: Danilo Sartorello Spinola
Date Deposited: 24 Mar 2022 11:39
Last Modified: 24 Mar 2022 11:45
URI: http://www.open-access.bcu.ac.uk/id/eprint/12978

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