No easy balancing act: reducing the balance-of-payments constraint, improving export competitiveness and productivity, and absorbing surplus labor – the Indian experience

Suranjana Nabar-Bhaduri
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Suranjana Nabar-Bhaduri: Visiting Assistant Professor of Economics, Grinnell College, Grinnell, IA, USA

Review of Keynesian Economics, 2015, vol. 3, issue 4, 536—566

Abstract: As per the balance-of-payments constraint hypothesis, in an open economy, achieving a higher long-run rate of growth requires a country to reduce its balance-of-payments constraint through an improved export performance, and the production of import substitutes, which would lower the income elasticity of demand for imports. In developing countries, a sustainable and inclusive process of development also requires the generation of high productivity activities and quality employment. By focusing on the Indian case, this paper shows that even if a developing country manages to reduce its balance-of-payments constraint, concentrated improvements in productivity and employment may remain at the industrial level. Furthermore, a reduction of the balance-of-payments constraint may be more the result of an improvement in the net exports of services than an improvement in the external competitiveness of merchandise exports. Such a services-led reduction of the balance-of-payments constraint may not address the problem of generating large-scale quality employment and making the growth process more inclusive.

Keywords: balance-of-payments constraint; export dynamics; technology gaps; import content of exports; structural heterogeneity; services-led growth (search for similar items in EconPapers)
JEL-codes: F14 F41 F43 O11 O12 O14 (search for similar items in EconPapers)
Date: 2015
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