The Balance-of-Payment Constraint and Growth Rate Differences Among African and East Asian Economies

The balance-of-payments constrained growth rate model postulates that the balance of payments position of a country is the main constraint on economic growth, because it imposes a limit on demand to which supply can adapt. In its basic form, the model is epitomized by the 'dynamic Harrod foreign trade multiplier' which postulates that the growth rate of country can de predicted by the rate of growth of its volume of exports divided by its income elasticity of demand for imports. In its extended form, the model incorporates two factors that might cause a country's growth rate to deviate from the rate predicted by the basic dynamic Harrod foreign trade multiplier namely, changes in the terms of the terms of trade and capital flows. This paper applies the basic and extended model to a sample of 40 African and Asian countries aiming at explaining growth rate differences among these countries by quantifying the individual and combined contributions of export growth, capital flows and chanfes in the terms of trade in each country's case.