Working Paper Number
This paper derives the balance of payments-constrained growth (BPCG) model as a special case of a three good framework that incorporates ex- portables, importables, and non-tradables. The conditions under which the canonical form of the BPCG rate can be derived are made explicit and the assumptions scrutinized. It is shown that the presence of non- tradables, substitutability between exportables and importables, and in- complete specialization in expenditure generally dampen the externally- constrained growth rate. These findings help explain why empirical esti- mates tend to overestimate the BPCG rate. Overall our findings under- score the observation that tests of the BPCG hypothesis are as much a test of the internal structure of the economy under consideration.
Razmi, Arslan, "Exploring the Robustness of the Balance of Payments- Constrained Growth Idea in a Multiple Good Framework" (2009). Economics Department Working Paper Series. 1.