An empirical test of the “balance of payments stages” hypothesis

Abstract

The idea that a country goes through a number of distinct balance of payments stages, starting as an immature debtor and ending as a mature creditor, goes back at least to Cariness (1874). Discussing borrowing by colonies, Cairnes traces the changes in the balance of payments from an import surplus financed by borrowing to an export surplus in goods to pay interest charges, and on to repayment of debts and lending abroad (Cairnes, 1874, pp. 355-63). The essential element of all later refinements is a three-fold breakdown of the balance of payments net goods and services excluding investment income, net investment income, and net capital transfers to define balance of payments stages. Some writers list four (e.g. Bach, 1960, pp. 699-700), some five (e.g. Meier and Baldwin, 1957, pp. 8 l-82) and some six or seven stages (e.g. Enke and Salera, 1947, pp. 638-41). Crowther (1957), in what is probably the most detailed discussion of this concept, presents the following six-stage classification: 1. Immature debtors-borrowers: a deficit in goods and services excluding investment income ’ and a deficit in investment income, financed by net capital receipts.