Foreign trade elasticities in centre-periphery models of growth and development

Abstract

The Author looks at the difference in growth rates among countries and argues that they can be traced to the strength of the balance of payments position, determined largely by the propensity to export relative to the propensity to import. Relative growth performance, thus, can be understood by looking to income elasticities of demand for exports and imports. This insight into the process of income determination in open economies, found in Harrod as well as in the literature on economic development, is developed through so-called centre-periphery models of growth and development. However, their essential conclusions were already contained in the early classic papers. The author concentrates on three of them (Prebisch, Seers, Kaldor) to argue that a country’s growth rate relative to another’s can be approximated by the ratio of its income elasticity of demand for exports to its income elasticity of demand for imports.