Balance-of-payments-constrained growth model: an application to the Kazakhstan’s economy

Abstract

In this paper we analyze whether the long-term economic growth of Kazakhstan is subject to macroeconomic constraints. The balance-of-payments-constrained growth (BPCG) models predict that a country’s growth rate can be approximated through the ratio of growth rates of exports to the income elasticity of demand for imports. We apply the BPCG model to Kazakhstan’s quarterly data—a typical emerging economy with a low trade to GDP ratio. To estimate the trade parameters we use Johansen’s cointegration technique. Vector error correction model is employed to analyze the short-run adjustments of income elasticities. The results demonstrate that the average growth rate estimated by the BPCG hypothesis projects around 2% long-run economic growth for Kazakhstan and current economic growth is aggregate demand constrained.