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SUMMARY:Finance and Economic Growth in a Balance of Payments Constrained G
 rowth Model - Carolina Troncoso Baltar\, Darwin College\, Cambridge
DTSTART:20091124T131000Z
DTEND:20091124T140000Z
UID:TALK21087@talks.cam.ac.uk
CONTACT:Dr Hilary Powell
DESCRIPTION:Some developing countries\, especially Latin American countrie
 s\, have had low economic growth after trade and financial liberalisation.
  The main idea behind the reforms was to develop their domestic financial 
 system\, which would give more opportunities to credit. The latter would f
 inance investments which would then increase economic growth. The problem 
 is that higher GDP growth has not materialised. To understand this problem
 \, the paper starts from the study of growth restricted by the balance of 
 payments. This kind of model highlights the role played by exports on econ
 omic growth\, restricting the analysis to the equilibrium in trade. But ba
 lance of payments constrains cannot be restricted just to trade. One impor
 tant component of the balance of payments is the financial and capital acc
 ount. The objective of this paper is to introduce considerations about fin
 ancing of an economy into this model of growth constrained by the balance 
 of payments.  In introducing finance into this discussion\, it is crucial 
 to explicitly consider other components of the effective demand\, such as 
 investment and consumption\, trying to understand especially the impact of
  credit on economic growth. The reference will be a developing economy whi
 ch opened their trade and finance with the aim of developing its domestic 
 financial system to have higher economic growth. The model is applied to t
 he Brazilian case\, in which trade and financial liberalisation were intro
 duced in the 1990s. Brazil is an interesting case in Latin America\, becau
 se this country has a relatively diversified industry and from the 1950s t
 o the end of the 1970s its economic growth was very high. The 1980s was ma
 rked by the debt crises and Brazil had to pay its debt damaging its invest
 ments. It was in that period when the reforms gained strength\, with expec
 tations of changing this situation. The main result of the model to the Br
 azilian case shows that trade and financial liberalisation did not induce 
 the necessary changes in the productive structure to resume economic growt
 h with restriction in the balance of payments. Especially highlighted are 
 the effects of the instability of the international financial market. It g
 reatly conditioned the effects of trade and financial liberalisation on th
 e evolution of the economy\, particularly the financial sector.
LOCATION:Entertaining Room\, Darwin College
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