Export surpluses and complementarities of countries: a note on realism of balance of payment constrained growth models

Abstract

The present note develops an argument in which the connection between exports and growth should underpin the demand side role of exports. The role of exports supports the external economies and supply dynamics in the Young-Kaldor cumulative causation growth. Perhaps most important, the export-led growth in a developed country and its need of proper, dynamic supply response induces imports that, in turn, can support effective export-led growth of its trading partners. This perspective brings in the crucial role of a broad range of domestic Keynesian policies, supporting the demand side role of investment and exports that ensures the proper interactions of domestic growth and the broader participation in the export-led growth. The resultant macro increasing returns at the international stage—export-led advanced growth in one country associated with such growth in other participating countries—provides the Keynesian understanding of the short run adjustment underlying interaction of exports, imports and domestic growth that permits the long run transition toward the balance of payment constrained growth. The Keynesian insight into the role of demand also underpins how additional participation in export-led growth brings forth further enhanced, endogenous export-led growth propensities for the trading partners that propagate in a cumulative way.

Keywords:

• Aggregate demand management and role of investment: external economies
• Keynesian exports-led growth
• macro increasing returns
• Young–Kaldor cumulative causation

JEL CLASSIFICATIONS::

• O
• O4
• O14
• F43
• F1

Notes

Notes

1 The origin of the model could be traced to the concern that the export-led growth (in Kaldorian lines) can be constrained by higher imports induced by output growth or due to lack of (or shrinkage of) foreign market (Blecker 2013 for the literature on the different modeling strategies). Here, the present paper endorses Blecker (2009, 2013) position that the BPCG models are oriented more towards an explanation of long run data, but should incorporate both short and medium run adjustments captured best by the export-led growth processes.

2 In fact, Thirlwall in his various writings (cited above) emphasizes this aspect of demand constrained model. However, the models remain silent on domestic demand problems that might need the help of exports; even if a demand side to exports for the output determination is assigned, there is no discussion (in these studies) as to why it would induce the matching increase in imports (and automatic savings investment equality); the silent on such issues gives credence to the criticism by Palumbo.

3 For the existing literature in this tradition, see Blecker (2009).

4 In this sense, the need of imports arises from possible supply constraints facing the advanced growth process (and no doubt, Kaldor was also concerned with these issues, and Palumbo (2009) could be right that they can be a source of limits to growth). However, this need is an offshoot of an exports-led growth process, and as noted below, can bring about the balance of trade that would reflect higher growth prospects both of the advanced country and the world.

5 However, since the increase in income is due to better domestic supply responses with coming up of new products, industries, etc., and the trading partner is an underdeveloped country, the propensity to import would be of negligible importance.

6 This should not be confused with ‘an advanced’ mercantilist policy of imports favored by Thomas Mun (see, Eltis, 1987) where exports surpluses are used up for imports (possibly with a ‘low domestic inflation, low rate of interest, low exchange rate’ environment) that are diverted for further exports. Mun’s argument is to ensure future profitable exports surpluses for a specific country in a cumulative manner.

7 For its relevance in Keynesian framework, in different contexts, see Blecker 2009, 2013; Gracimartin, Rivas and Martinez, 2010.

8 The support for BPCG models is found mainly in very long run data and the support for the exports led cumulative causation are found for short and medium term adjustments underlying this model that also should incorporate the adjustments in response to the changes in exchange rate (see, Blecker 2013).

9 Of course, real world short run situations permits of much more maneuverability, but Kaldor and McCombie would perhaps put all this to favorable domestic supply positions that should be viewed as favorable “long run exports positions.”

Additional information

Notes on contributors

Satya Prasad Padhi

Satya Prasad Padhi is at Department of Economics, Panjab University, Chandigarh, India.