The open economy: exports-led growth and balance of payments constraint in the SM model

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Chapter 7 in The Supermultiplier, 2023, pp 114-137 from Edward Elgar Publishing

Abstract: Opening the national economy is the best way to realize how important efficiency and competitiveness are. The supermultiplier (SM) model is well equipped for such an undertaking. The international economy with different currencies adds new insights to the endogenous money hypothesis. The true goal of foreign trade is to collect international means of payment to pay for the imports that improve firms’ efficiency and people’s well-being. This is achieved by exports and international loans to pay the trade deficit. If the current account is balanced, we can write SM=1/s=1/x=1/m. Suppose now that our nation has a recurrent trade deficit (defN) whose average debt service amounts to dN. The export SM could be computed by any of these ratios: SM = 1/m + [1 - c(1 - t) - h] = 1/m δN = 1/χ = 1/σ Export-led economies are the ideal ground to test the SM model. They enhance the driving power of exports but also the balance of payments constraint. A new limit to demand-led growth shows up.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2023
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