The role of capital flows in external constrained growth: the experiences of Spain and Portugal in the eurozone
- Carlos Garcimartín
- Luis A. Rivas
ISSN: 1309-8055
Year of publication: 2011
Volume: 3
Issue: 2
Pages: 47-56
Type: Article
More publications in: International Journal of Economics and Finance Studies
Abstract
Broadly speaking, the balance-of-payments constraint hypothesis has been empirically supported.Yet, it shows some shortcomings highlighted in the literature. In our opinion, two of them must beanalysed. 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 atdeveloping a model that incorporates both possibilities: temporary external disequilibria and theimpact of relative prices. This model is subsequently used to analyse the evolution of the Spanishand Portuguese economies in last decades, and, in particular, th e different paths shown by bothcountries since their accession to the Eurozone.