EXCHANGE RATE, INCOME DISTRIBUTION AND TECHNICAL CHANGE IN A BALANCE-OF-PAYMENTS

CONSTRAINED GROWTH MODEL

Rafael Saulo Marques Ribeiro Ph.D student at the University of Cambridge, UK

Gilberto Tadeu Lima Department of Economics, University of São Paulo, Brazil

John S. L. McCombie Department of Land Economy, University of Cambridge, UK

UNU-MERIT conference 26-28 November 2014

The balance-of-payments constrained growth model revisited

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The balance-of-payments constrained growth model revisited

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The balance-of-payments constrained growth model revisited

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Endogenizing the income elasticities

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Endogenizing the income elasticities

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Technological progress

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Technological progress

FIGURE 1 – The locus 𝑠𝑠 = 0

𝑆𝑆

𝜎𝜎𝐿 0.5 𝜎𝜎𝐿∗

𝜌0𝛼3

𝑆𝑆∗

𝜎𝜎𝐿2

1

1

𝑠𝑠 = 0

𝜎𝜎𝐿1

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Functional income distribution

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Functional income distribution

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Functional income distribution

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Functional income distribution

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FIGURE 2 – The locus �̇�𝜎𝐿𝐿 = 0

𝑆𝑆

𝜎𝜎𝐿 0.5

𝛾0𝛾2

1

1

�̇�𝜎𝐿 = 0

The technology gap and income distribution dynamics

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The technology gap and income distribution dynamics

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FIGURE 3 – The loci �̇�𝑆 = 0 and �̇�𝜎𝐿𝐿 = 0

𝑆𝑆

𝜎𝜎𝐿 0.5

𝑆𝑆𝐸1

1

1

�̇�𝜎𝐿 = 0

𝜎𝜎𝐿𝐸1 𝜎𝜎𝐿𝐸2

�̇�𝑆 = 0

𝑆𝑆𝐸2

𝐸1

𝐸2

The technology gap and income distribution dynamics

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The technology gap and income distribution dynamics

FIGURE 4 – The low wage share region

𝑆𝑆

𝜎𝜎𝐿

𝐸1

𝑑𝑠𝑠 = 0

𝑑𝜎𝜎�𝐿𝐿 = 0

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The technology gap and income distribution dynamics

FIGURE 5 – The high wage share region

𝑆𝑆

𝜎𝜎𝐿

𝐸2

𝑑𝑠𝑠 = 0

𝑑𝜎𝜎�𝐿𝐿 = 0

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Real exchange rate, technological progress and income distribution

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FIGURE 6 – The permanent impact of a nominal devaluation on the RER

𝑡

𝑑ΘΘ

𝑅𝐸𝑅

𝑅𝐸𝑅0

𝑅𝐸𝑅𝐸𝐿

𝑡∗ 0

Real exchange rate, technological progress and income distribution

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FIGURE 7 – The impact of an undervaluation in locus �̇�𝑆 = 0

𝑆𝑆

𝜎𝜎𝐿

1

1

�̇�𝑆0 = 0 �̇�𝑆1 = 0

0.5

Real exchange rate, technological progress and income distribution

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FIGURE 8 – The impact of an undervaluation on locus �̇�𝜎𝐿𝐿 = 0

𝑆𝑆

𝜎𝜎𝐿

1

1

�̇�𝜎𝐿1 = 0

0.5

�̇�𝜎𝐿0 = 0

Real exchange rate, technological progress and income distribution

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FIGURE 9 – The impact of a devaluation on the dynamics between 𝑆𝑆 and 𝜎𝜎𝐿𝐿

𝑆𝑆

𝜎𝜎𝐿 𝜎𝜎𝐿𝐸2′

𝑆𝑆𝐸1

1

1

�̇�𝜎𝐿1 = 0

𝜎𝜎𝐿𝐸1 𝜎𝜎𝐿𝐸2

�̇�𝑆 = 0

𝑆𝑆𝐸2

𝐸1

𝐸2 𝐸1′

𝐸2′ 𝑆𝑆𝐸2′

𝜎𝜎𝐿𝐸1′

𝑆𝑆𝐸1′

The net impact of a currency devaluation on long-term growth

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The net impact of a currency devaluation on long-term growth

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FIGURE 10 – The impact of a currency devaluation on long-term growth

𝑆𝑆

𝜎𝜎𝐿

Θ

Θ 450

𝑆𝑆𝐸(Θ)

𝜎𝜎𝐿𝐸(Θ)

𝑦𝐵𝑃0 𝑦𝐵𝑃1 𝑦𝐵𝑃2

𝜎𝜎𝐿𝐸2 𝜎𝜎𝐿𝐸2′

𝑆𝑆𝐸2′

𝑆𝑆𝐸2 𝐸2

𝐸2′

Θ𝐸2′ Θ𝐸2