External challenges to the economic expansion of emerging markets in the post-COVID 19 and post-COP26 era:
A balance-of-payments constrained growth (BPCG) perspective
DOI:
https://doi.org/10.13133/2037-3643/17974Keywords:
Balance of Payment Constraint Growth Model, Current account deficit, Emerging markets' vulnerabilities, External Constraint, Cross-border flowsAbstract
The purpose of this study is to assess, from a Balance of Payment Constraint Growth (BPCG) theoretical perspective, current key challenges of developing countries that spring from two broad exogenous factors. These factors are: i) global shocks that affect the world economy, and ii) major economic policy changes in developed countries. The BPCG perspective helps to identify to what extent these challenges are rooted in the developing countries’ vulnerabilities and structural weaknesses linked to their role in international trade and capital markets. To discuss the current uncertain global environment potential implications for developing economies – growing inflation, hawkish monetary policy, cross-border flows redistribution, as well as the geopolitical redefinition of international trade and global value chains, among others - the present work builds a BPCG model for the post-COVID era and applies it to evaluate challenges to growth in six countries: Chile, Colombia, Ghana, India, Mexico, and Turkey.
References
Abeles M., Pérez Caldentey E., and Porcile G. (2020), “The COVID-19 crisis and the structural problems of Latin America and the Caribbean: responding to the emergency with a long-term perspective, CEPAL Review, Special issue, n. 132, December.
Aizenman J., Binici M., and Hutchison M.M. (2014), “The transmission of Federal Reserve tapering news to emerging financial markets”, NBER Working Paper, n. 19980, Cambridge (MA): National Bureau of Economic Research.
Akyüz, Y. (2017). Playing with fire: Deepened financial integration and changing vulnerabilities of the Global South. Oxford University Press.
Alba C., Cuadra G., Hernández J.R. and Ibarra-Ramirez R. (2021), “Capital Flows to Emerging Economies and Global Risk Aversion during the COVID-19 Pandemic”, Working Papers, n. 2021-17, Mexico City: Banco de México.
Beirne J., Renzhi N., Sugandi E., and Volz U. (2020), “Financial market and capital flow dynamics during the COVID-19 pandemic”, ADBI Working Paper Series, n. 1158, Tokyo: Asian Development Bank Institute.
Beirne J., Renzhi N., and Volz U. (2021), “Local currency bond markets, foreign investor participation and capital flow volatility in emerging Asia”, The Singapore Economic Review, 66 (3), June.
Benhin J.K. (2006), “Agriculture and deforestation in the tropics: A critical theoretical and empirical review”, AMBIO: A Journal of the Human Environment, 35 (1), pp. 9-16.
Bhering G., Serrano F., and Freitas F. (2019), “Thirlwall’s law, external debt sustainability, and the balance-of- payments-constrained level and growth rates of output”, Review of Keynesian Economics, 7 (4), pp. 486-497.
BIS – Bank for International Settlements (2021), “Changing Patterns of Capital Flows”, CGFS Papers, n. 66, Basel: Committee on the Global Financial System, Bank for International Settlements.
BIS- Bank for International Settlements (2022) Effective exchange rate statistics, https://www.bis.org/statistics/eer.htm?m=2676
BIS- Bank for International Settlements (2022) Central bank policy rates, https://www.bis.org/statistics/cbpol.htm
Caldentey, E. P., Favreau Negront, N., & Méndez Lobos, L. (2019). Corporate debt in Latin America and its macroeconomic implications. Journal of Post Keynesian Economics, 42(3), 335-362.
Caldentey, E. R. P., Rojas, L., & Nalin, L. (2022). A baseline stock-flow model for the analysis of macroprudential regulation for Latin America and the Caribbean (No. PKWP2217).
Cantú, C., & Chui, M. (2020). Financial market development and financial stability. José Vicente Romero, Hernando Vargas, Pamela Cardozo, and Andrés Murcia........... 8 3 From float to currency floor and back to float: the Czech National Bank’s temporary exchange rate commitment, 19.
Carstens A. and Shin H.S. (2019), “Emerging markets aren’t out of the woods yet”, Foreign Affairs, March 15
Cerutti E., Claessens S., and Puy D. (2019), “Push factors and capital flows to emerging markets: why knowing your lender matters more than fundamentals”, Journal of International Economics, 119, pp. 133-149.
Chang, R., & Velasco, A. (1999). Liquidity crises in emerging markets: theory and policy. NBER macroeconomics Annual, 14, 11-58.
Chowdhury A.A. and Sundaram J.K. (2022), “Stagflation Threat: Be Pragmatic, Not Dogmatic”, Challenging Development, March 22. Available at: https://jomoglobaldev.substack.com/p/stagflation-threat-be-pragmatic-not?s=r
Eichengreen, B., & Gupta, P. (2015). Tapering talk: The impact of expectations of reduced Federal Reserve security purchases on emerging markets. Emerging Markets Review, 25, 1-15.
Gallagher, K.P. and Kozul-Wright R. (2022), The Case for a New Bretton Woods, Cambridge (UK): Polity Press.
Garcimartín C., Kvedaras V., and Rivas L. (2016), “Business cycles in a balance-of-payments constrained growth framework”, Economic Modelling, 57, pp. 120-132.
Hargita Y., Giessen L., and Günter S. (2020), “Similarities and differences between international REDD+ and transnational deforestation-free supply chain initiatives—A review”, Sustainability, 12 (3), p. 896.
Inernational Monetary Fund (IMF) (2022), Balance of Payments and International Investment Position Statistics, https://data.imf.org/?sk=7A51304B-6426-40C0-83DD-CA473CA1FD52
Koepke, R. (2019). What drives capital flows to emerging markets? A survey of the empirical literature. Journal of Economic Surveys, 33(2), 516-540.
Krugman, P. (1999). Balance Sheets, The Transfer Problem, And Financial Crises. In: International Finance And Financial Crises (pp. 31-55). Springer, Dordrecht.
McCombie J.S.L. and Thirlwall A.P. (1997), “Economic growth and the balance-of-payments constraint revisited”, in Arestis P., Palma G. and Sawyer M. (eds.), Markets, Unemployment and Economic Policy: Essays in Honour of Geoff Harcourt (vol. 2, pp. 498-511), London: Routledge.
McCombie J.S.L. and Thirlwall A.P. (eds.) (2004), Essays on Balance of Payments Constrained Growth: Theory and Evidence, London: Routledge.
Moreno-Brid J.C. (1998-99), “On capital flows and the balance-of-payments-constrained growth model”, Journal of Post Keynesian Economics, 21 (2), pp. 283-298.
Nalin, L., & Yajima, G. T. (2021). Commodities fluctuations, cross border flows and financial innovation: A stock‐flow analysis. Metroeconomica, 72(3), 539-579.
Nalin, L., & Yajima, G. T. (2022). Balance Sheet Effects in a Financialized Environment: A Stock-Flow Consistent Framework for Mexico. Review of Political Economy, 1-21
Observatory of Economic Complexity (2022), https://oec.world/en/profile/country/gha#:~:text=Economic%20Complexity,-%23permalink%20to%20section&text=Ghana%20has%20a%20high%20level,expected%20exports%20in%20each%20product.
Rhodes W. and Lipsky J. (2022), “Act now to prevent a new sovereign debt crisis in the developing world”, Financial Times, March 23.
Singh A. (1977), “UK Industry and the World Economy: A Case of De-industrialization?”, Cambridge Journal of Economics, 1 (2), pp. 113-136.
Soukiazis E., Cerqueira P., and Antunes M. (2012), “Modelling economic growth with internal and external imbalances: Empirical evidence from Portugal”, Economic Modelling, 29 (2), pp. 478-486.
Soukiazis E., Cerqueira P., and Antunes M. (2014), “Explaining Italy’s economic growth: A balance-of-payments approach with internal and external imbalances and non-neutral relative prices”, Economic Modelling, 40, pp. 334-341.
Statista (2022), https://www.statista.com/statistics/874325/cocoa-production-volume-colombia/#:~:text=Cocoa%20production%20in%20Colombia%20has,in%20the%20country%20since%202010.
Stiglitz, J. E. (2022, 8 abril). Shock Therapy for Neoliberals. Project Syndicate. https://www.project-syndicate.org/commentary/russia-war-covid-global-shocks-reveal-bankruptcy-of-neoliberalism-by-joseph-e-stiglitz-2022-04?barrier=accesspaylog
Thirlwall A.P. (1979), “The balance of payments constraint as an explanation of international growth rate differences”, BNL Quarterly Review, 32 (128), pp. 45-53.
Thirlwall, A. P. (1997). Reflections on the concept of balance-of-payments–constrained growth. Journal of Post Keynesian Economics, 19(3), 377-385.
World Bank (2022), Bank Regulation and Supervision Survey, https://www.worldbank.org/en/research/brief/BRSS
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Juan Carlos Moreno-Brid, Lorenzo Nalin, Edgar Pérez-Medina
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
