Italy’s Decline and the Balance-of-Payments Constraint: a Multicountry Analysis

Alberto Bagnai

No 1606, a/ Working Papers Series from Italian Association for the Study of Economic Asymmetries, Rome (Italy)

Abstract: According to the literature, the decline experienced by the Italian economy in the last two decades depends on a slowdown of its labor productivity, starting in the Nineties. The supply-side explanations of this slowdown are inconsistent with the major stylized facts. In this paper, we verify whether a better explanation is provided by the effect of a negative demand shock, through Italy’s external constraints, in the framework of Kaldor-Dixon-Thirlwall cumulative growth model. To this end, we use a multi-country generalization of Thirlwall’s balance-of-payments-constrained growth model, which allows us to investigate the contribution of Italy’s main trade partners to Italy’s long-run growth from 1970 to 2010. The trade partners are disaggregated into seven groups: Eurozone core, Eurozone periphery, United States, other European countries, OPEC countries, BRIC, and the rest of the world. The results show that Italy’s long-run growth has been consistent with the Bop-constraint, that its decline can be explained by a progressive tightening of this constraint, that the sudden slowdown of labor productivity in the Nineties corresponds with a major shock on Italy’s external constraint, and that the major contributions to this shock came, through different channels of transmission, from the core Eurozone countries and from OPEC countries.

Keywords: General aggregative model: post-Keynesian; Economic growth of open economies; Development planning and policy: trade policy; foreign exchange policy. (search for similar items in EconPapers)
JEL-codes: E12 F43 O24 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2016-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Italy’s decline and the balance-of-payments constraint: a multicountry analysis (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ais:wpaper:1606

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