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Balance of Payments Constraints in a Developing Economy: A heterodox theoretical approach

By Esther Dweck | Fall 2006

ABSTRACT

In this article, we present a heterodox theoretical framework to discuss some characteristics of developing countries, especially those related to the persistence of balance of payment constraints. The main purpose is to identify characteristics that combined may create a structural vicious circle imposing an external constraint; a central theme for development economists of the first generation, mainly Prebisch. The broader purpose of the article is to contribute to the return of discussions regarding a theoretical tool, outside the mainstream, more adequate to address developing countries’ issues. It is believed that very important complementary references can be drawn by combining the Evolutionary/Neo-Schumpeterian and Post-Keynesian approaches. Based on the idea that a developing economy has some structural characteristics that create some chronic vicious circles, it is essential to search for a base in economic theory to identify those characteristics and conduct policy to overcome those obstacles. Those characteristics are not the same for every developing country, on the contrary, the last five decades were a period of great divergence within the developing world. The New Development Economics, derived from the neoclassical endogenous growth models, is very limited in dealing with this subject. We try to show that the main contributions come from outside the mainstream economics, and that a combination of those can be relevant for an alternative approach on economic development. These contributions allow a better comprehension of the debate, and help to strengthen the arguments for policy intervention.

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Read More: Development, Economy, Finance

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