The balance-of-payments constraint: from balanced trade to sustainable debt

Nelson H. Barbosa-Filho


This paper extends the balance-of-payments constraint on growth known as Thirlwall's law to incorporate unbalanced trade and debt accumulation. Assuming that small open economies face a liquidity constraint, the text shows the growth and real-exchange-rate policy rules consistent with a stable ratio of net exports to income. Given such rules, the text shows how the trade balance of a small open economy is residually determined by the ratio of foreign debt to income allowed by international conditions.


JEL Codes: F32, F41


Balance of Payments, Open Economies, Open Economy

Full Text:



ALEXANDER, R. and A. KING (1998), "Growth and the balance-of-payment constraint", Research Paper, no. 622, Department of Economics, The University of Melbourne.

AVERBUG, A. and F. GIAMBIAGI (2000), "A crise brasileira de 1998/99 – Origens e consequências", Texto para Discussão, no. 77, Banco Nacional de Desenvolvimento Econômico e Social.

BARBOSA-FILHO, N.H. (2001), "International liquidity and growth in Brazil", Working Paper, no. 2001.04, Center for Economic Policy Analysis, New School University.

BONONO, M. and C. TERRA (1999), "The political economy of exchange rate policy in Brazil: 1964-97", Ensaio Econômico, no. 341, Escola de Pós-Graduação em Economia, Fundação Getulio Vargas.

CHENERY, H. and M. BRUNO (1962), "Development alternatives in an open economy: the case of Israel", Economic Journal, vol. 72, pp. 79-103.

HARROD, R. (1933), International Economics, Cambridge University Press, Cambridge.

HARROD, R. (1939), "An essay in dynamic theory", Economic Journal, vol. 49, pp. 14-33.

KRUGMAN, P. (1989) "Differences in income elasticities and trends in real exchange rates", European Economic Review, vol. 33, pp. 1031-34.

MCCOMBIE, J.S.L. and A.P. THIRLWALL (1994), Economic Growth and the Balance of Payments Constraint, St. Martin's Press, New York.

MCCOMBIE, J.S.L. and A.P. THIRLWALL (1997), "Economic growth and the balance of payments constraint revisited", in P. Arestis, G. Palma and M. Sawyer eds, Markets, Unemployment and Economic Policy: Essays in Honour of Geoffrey Harcourt, vol. 2, Routledge, London, pp. 498-511.

MORENO-BRID, J.C. (1998), "On capital flows and the balance-of-payments-constrained growth model", Journal of Post Keynesian Economics, vol. 21, pp. 283-98.

PUGNO, M. (1998), "The stability of Thirlwall's model of economic growth and the balance-of-payments constraint", Journal of Post Keynesian Economics, vol. 20, pp. 559-81.

SAINZ, P. and A. CALCAGNO (1999), "La economia brasileña ante el plan real y su crisis", Temas de Coyuntura, vol. 4, ECLAC, United Nations.

TAYLOR, L. (1991), Income Distribution, Inflation, and Growth: Lectures on Structuralist Macroeconomic Theory, MIT Press, Cambridge, Mass.

TERRA, C. (1999), "Finance and changing trade patterns in Brazil", Ensaio Econômico, no. 354, Escola de Pós-Graduação em Economia.

THIRLWALL, A.P. (1979), "The balance of payments constraint as an explanation of the international growth rate differences", Banca Nazionale del Lavoro Quarterly Review, no. 128, pp. 45-53.

THIRLWALL, A.P. and M.N. HUSSAIN (1982), "The balance of payments constraint, capital flows and growth rate differences between developing countries", Oxford Economic Papers, vol. 10, pp. 498-509.

TINBERGEN, J. (1995), On the Theory of Economic Policy, North-Holland, Amsterdam.


  • There are currently no refbacks.

Copyright (c) 2016 Nelson H. Barbosa-Filho

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.



Sponsored by   

ISSN 2037-3643

Reg. Tribunale di Roma n.377/2009 del 19/11/2009