Path dependence, distributive cycles and export capacity in a BoPC growth model

Abstract

In Dávila-Fernández and Sordi (2019), we have extended Goodwin's (1967) model to study the interaction between distributive cycles and international trade for economies in which growth is balance-of-payments constrained (BoPC). Building on that set-up, we investigate the implications of allowing exports to be a function of the capital stock. Using the existence part of the Hopf bifurcation theorem, we show that the resulting 3-dimensional system admits a limit cycle solution. We rely on numerical simulations to verify if fluctuations are persistent and bounded. Applying panel cointegration techniques, we also provide empirical evidence for a sample of 19 OECD countries between 1950–2014 that gives support to the formulation adopted for the exports function. Our main contribution lies in developing a simple base-line model to study distributive dynamics in open economies in line with recent developments in the BoPC growth literature. Furthermore, we show how the interaction between demand and innovation waves can generate complex dynamics as a representation of the statement “history matters”.