Oscar Bajo-Rubio, 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 of the level of demand to which supply can adapt. The experience of many countries shows how an unsustainable foreign deficit requires sooner or later a correction, which will later mean a brake to output growth. Such an argument has a certain tradition in the analysis of the Spanish economy since the beginning of industrialization. In this paper we examine this issue for the case of Spain, using long time series dating back to the beginning of the XIX century, and calculate the balance of payments-constrained growth rate. The long time span of the data will allow us to make use of recent tests on structural change in the series of foreign trade, so that we could identify some sub-periods where the constraint holds, and others where it doesn’t. By comparing the computed balance of payments-constrained growth rates with the actual growth rates we would be able to assess whether the balance of payments has acted as a constraint to the economic growth of Spain over the period of analysis.