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

Nelson H. Barbosa-Filho

Abstract


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


Keywords


Balance of Payments, Open Economies, Open Economy

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References


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