Constantine, Collin M. (2020) Essays in open economy macroeconomics : technological gaps, income distribution and the balance of payments constraint. (PhD thesis), Kingston University, .
Abstract
This thesis contains four chapters. In the first chapter, I provide a structured survey of balance of payments (BP) constrained growth models. Unlike other surveys, this chapter reviews the various mechanisms of relative price adjustments, undertakes a comprehensive review of capital flows and surveys the literature on endogenous trade elasticities. The second chapter contributes to the literature on technological gaps and BP constrained growth by developing a theoretical framework to account for the ambiguous effects of capital inflows on shortand medium-run growth. The model shows that when a technological gap exists between two countries in an Economic and Monetary Union (EMU) and it exceeds a critical threshold, capital flows toward the technological laggard deteriorate its production structure and reduce its BP constrained growth rate. Several conclusions are derived. The size of the technological gap and demand-regimes are consequential for relative economic performance and regional cohesion. Capital flows within a community can produce both convergence and divergence effects. Finally, if political consensus is lacking at the regional level as to the design framework for a Fiscal Union, then the principal convergence criteria must include demand-regimes and the size of the technological gap. The third chapter endogenizes the trade elasticities as a an ambiguous function of the wage share but a positive function of the inverted technological gap. When the laggard economy has a small capital goods producing sector, high inequality and conspicuous consumption, a tradeoff emerges between distribution and technological convergence. However, the tradeoff becomes less binding if an EMU provides for investments in technological innovation and emulation that assist the catching-up process. The fourth chapter incorporates the monetary economy into a three-incomes post-Kaleckian model. It demonstrates how a devaluation can induce contractionary effects by lowering the profit share and raising the loan rate. These results are driven by oligopolistic bankers who exercise market power in the bond and loan markets. Moreover, the chapter demonstrates that monetary policy increases bankers’ rent share, which lowers the rate of firm-level innovation. These results imply that the effects of a devaluation depend on the degree of competition in the banking sector, the size of banks’ foreign assets- and loan-capital ratios and whether or not the economy is in a regime of excess reserves.
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