Oscar Bajo-Rubio, Ph.D. and Carmen Díaz-Roldán, Ph.D. Departamento de Análisis Económico y Finanzas, Universidad de Castilla-La Mancha, Facultad de Derecho y Ciencias Sociales, Ronda de Toledo s/n, Ciudad Real, 13071, Spain
The balance of payments can act as a constraint to the rate of growth of output, since it puts a limit to the growth in the level of demand to which supply can adapt. The experiences of several countries show how an unsustainable external deficit requires sooner or later a correction, which puts a brake on further output growth. In this paper we examine this issue for the case of several transition countries, by computing their balance of payments-constrained growth rates, following Thirlwall’s approach, as the rate of growth of exports divided by the income elasticity of demand for imports. By comparing these computed balance of payments-constrained growth rates with their actual growth rates we would be able to assess whether the balance of payments has acted as a constraint to economic growth in the countries analyzed.