Applications of the Balance-of-Payments Constrained Growth Model

In this chapter we consider some of the applications to which our balance-of-payments constrained growth model can be put — other than the analysis of growth within or between countries and regions. First, we use the model to consider the effects on growth of the removal of tariff barriers within Customs Unions. Secondly, we show that in a closed economy model of industry and agriculture, the equilibrium level of industrial output is determined by the Harrod trade multiplier result. Thirdly, we see how the model can be used for forecasting the rate of growth of output consistent with balance-of-payments equilibrium given assumptions about the growth of world income and changes in the nominal and/or real exchange rate.