Real exchange rate, technological catching up and spillovers in a balance-of-payments constrained growth model

Abstract

Abstract The main objective of this work is to investigate the theoretical interrelationships between economic growth, the National Innovation System (NIS) and the real exchange rate (RER) in an export-led growth model. Formally, this work presents new changes in the Kaldor–Dixon–Thirlwalĺs model by the introduction of the RER, the NIS and a function that captures the endogeneity of productivity in the industrial sector. In the short term the equilibrium growth rate depends on the real exchange rate level and of the NIS development, which responds to the size of the technological gap, the public and private investments in R&D in relation to the output growth rate ratio and the absorption capacity for technological spillovers. In the long run, assuming the constancy of all exogenous variables, the convergence of the growth process depends on the output growth elasticity in relation to exports, the price elasticity of exports and the elasticity of productivity growth relative to output growth of the economy in general and to industry, in particular.