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In this paper we investigate the impact of the balance-of-payments constraint on output, income distribution and policy space in a small economy open to both commercial and financial flows. We do so by extending a Sraffian supermultiplier growth model to consider current and capital accounts and endogenous money. Expansionary fiscal policies increase output and its long run growth rate but have a negative impact on the balance-of-payments. Based on these results, we derive the value of government spending that maximises output while maintaining external equilibrium.Monetary policy also influences the balance-of-payments by attracting foreign financial flows through higher interest rates. This relationship is non-monotonic, since these flows can finance the external deficit resulting from a high output level but can also lead to a greater interest burden. This trade off allows us to find the level of the interest rate that maximises external space. It also implies that, with limits, raising interest rates might allow for higher real wages.Lastly, we examine the effects of the currency denomination of debt. We find that, in case of a depreciation, debt in domestic currency allows for a less contractionary adjustment than foreign currency-denominated debt but does not lead to higher economic growth. [ABSTRACT FROM AUTHOR]

The long-lasting, distributive changes in Argentina during the 1970s have been extensively studied from different theoretical perspectives. What has not yet been sufficiently examined, however, are the reasons behind the non-monotonic trends observed on income distribution during this period and, in particular, under the dictatorial regime (1976–83). To fill this gap, we have developed a model inspired in the modern Classical-Structuralist approach to income distribution. We argue that the irregular trend of the real wage reveals that only a partial correspondence exists between the class interests of the 1976 coup and the effects on income distribution of the successive economic programs implemented by the dictatorship. [ABSTRACT FROM AUTHOR]

A prevalent feature of the global economy is the relevance of trade in intermediates due to production fragmentation. This phenomenon has led to the revival and development of trade models that include inter-industry relations. A wide variety of Ricardian trade models cope with this feature. In this article, we develop a Sraffa-Leontief framework to compare and appraise these models. The models are distinguished by their underlying theory of distribution and the assumptions about the degree of international capital mobility. We compare the predicted effects on employment and the distribution of domestic income. Furthermore, we assess if the model assures the existence of a shared trade pattern, i.e., if it can ensure that all countries engage in trade (as the principle of comparative advantage predicts). It follows from our appraisal that it is not warranted that all countries can engage in international trade, even if they want to. In other words, if allowed to work, the ‘strong balancing forces’ may not make a country internationally competitive in a world with production fragmentation. [ABSTRACT FROM AUTHOR]

• Public spending cannot grow faster than exports in open economy demand-led models. • Government spending is still relevant since it allows to maximise growth. • High economic growth can lead to currency depreciations and inflation. • In peripheral economies, real wages are constrained by the balance of payments. • If there is wage resistance a cyclical dynamic is to be expected. We build a structuralist supermultiplier model for a small open economy with two sources of autonomous demand, government expenditures and exports. We find that, in the long run, there is a limit for government spending: its growth rate cannot exceed that of exports without generating an external crisis. However, there is a strong role for public policy, since there is nothing that automatically leads the economy to its maximum growth rate compatible with the external constraint to growth. In the short run, we find an additional restriction, related to income distribution. Since higher wages increase consumption and economic activity, they also require more imports, potentially leading to unsustainable debt growth. Therefore, there is a maximum real wage compatible with external equilibrium. If real wages targeted by unions exceed those compatible with balance-of-payments equilibrium, the economy can display economic cycles between capacity utilisation, income distribution and indebtedness, marked by permanent inflation. [ABSTRACT FROM AUTHOR]

• The so-called chain of comparative advantages cannot be built under heterogeneous capital. • The ranking of commodities by comparative autarky costs differs from the ordering of diversification. • Multiple breaks in the chain of comparative advantages may be required. • Changes in the profit rate may change the ordering of diversification. • The plausibility of the chain requiring multiple breaks increases with the rate of profits. We study the effects of income distribution on comparative costs and show that the presence of produced means of production dramatically affects the possibility to build a "chain of comparative advantages" to explain the direction of trade. Specifically, we show that: i) comparative autarky costs are bad predictors of the trade pattern because comparative costs are no longer proportional to relative wages; ii) to ensure that a single break in the chain suffices to separate imported from exported commodities, at most one tradable capital good may be employed in production. With heterogeneous capital goods, the chain may need to be broken into many segments. iii) A change in the profit rate may alter the ordering of the links, even if the chain is well behaved for a constant profit rate. And iv) the plausibility of the chain of comparative advantages requiring multiple links for the same industry increases with the profit rate. [ABSTRACT FROM AUTHOR]

We critically review the previous attempts to introduce money and finance into Sraffa's price system and identify the coexistence of two different notions of the interest rate that have not been properly disentangled: the interest rate as an opportunity cost and as an effective cost of production. We argue that the former must be present for the validity of the Monetary Theory of Distribution (MTD), while the latter is necessary to address the influence of the banking sector on income distribution. We then present a possible formalization of the banking sector that considers those specific features that distinguish its normal costs of production from other capitalist sectors of the economy. [ABSTRACT FROM AUTHOR]

In the so-called 'Ricardian' trade models, exclusion from trade is impossible because a country can always compensate its technological backwardness with low wages. This result is ensured in these models due to the very restrictive assumption that production requires unassisted labor alone. The present paper shows that the moment conditions of production realistically consider (a) the presence of capital goods and (b) a positive interest rate under international capital mobility, the likelihood of exclusion can no longer be neglected. We develop a model in which imported means of production may impose the presence of a positive lower bound to production costs even if there were no limits to the fall in the rate of domestic real wages. Exclusion is, therefore, the result of this lower bound being higher than the prevailing international price, both for capital and consumption-goods sectors. We finally examine the connection between hypotheses (a) and (b) and the existence of this positive lower bound, both in the model and under alternative assumptions about technology and show that under the hypothesis of technical dependency it is possible that a country is excluded from trade even if there is no capital mobility. [ABSTRACT FROM AUTHOR]

We develop a formal framework that endogeneizes the productive structure of a small open peripheral economy as the outcome of a problem of technical choices. We subsequently examine the main theoretical theses and policy prescriptions of the New- Developmentalist approach to economic growth. We argue that: a) not only does the pattern of specialization depend on technical conditions, but also on income distribution; b) in an economy without rents, the level of the money wage-nominal exchange rate ratio is univocally determined once the rate of profits is known, and shows an inverse relationship with it; c) if differential rents are considered, the level of the rate of profits can be set independently of the money wage-exchange rate ratio; d) the level of the exchange rate that ensures normal profitability of the primary sector need not coincide with the current-account equilibrium rate; e) the effective exchange rate need not gravitate around any of these two former levels, which must be rather seen as minimum thresholds of the effective rate; f) the unpleasant distributive consequences of exchange-rate depreciation can be partially avoided by means of export duties that do not raise primary-commodities production costs. [ABSTRACT FROM AUTHOR]

The paper addresses the ambiguity that surrounds the conception of capital and its role in neoclassical price-and-distribution theory. The difficulties encountered in the various attempts to define the marginal product either of capital or of a capital good are recalled and the conclusion is drawn that neither concept appears theoretically sound. This historical reconstruction is combined with critical discussion of the recent attempt by Paul Samuelson to determine income distribution by means of the “Master Function”, a device previously developed and presented by Samuelson himself with Erkko Etula, and its “non-neoclassical” marginal products. Rather than the existence of a continuum of alternative technical possibilities, this construction assumes the simultaneous use of a discrete number of methods of production for the same commodity. Even though each technique employs the inputs in fixed proportions, the coexistence of various techniques permits the full employment of an arbitrarily given vector of input endowments. As is shown here, however, the coexistence of methods required for the differentiability of the Master Function can take place, if heterogenous capital goods are used in production, neither in the case with stationary relative prices nor in the non-stationary Arrow–Debreu framework. [ABSTRACT FROM PUBLISHER]

By examining the contributions of two prominent contemporary neoclassical economists, i.e. Lucas and Hahn, the article attempts to shed light on the problematic relationship between neoclassical theory and observation. It is argued that this approach must face the unpleasant dilemma of having to choose between endowing general equilibrium theory with an explanatory role that is marred by its illegitimate notion of capital as a single factor of variable form (Lucas); or alternatively, to consistently treat each capital good as a distinct factor of production, with the bitter implication that the theory must simply renounce to have a correspondence with observation (Hahn). [ABSTRACT FROM AUTHOR]

The view that Walras's equilibrium concept refers to a temporary general equilibrium with stationary expectations has come to be the conventional opinion within the history of economics. This interpretation overlooks salient aspects of Walras's original equilibrium concept: (i) that it refers to a centre of gravitation, thus equilibrium must be assessed together with the adjustment mechanisms that are supposed to bring the economy towards its position of rest; (ii) that it attempts to represent a persistent position of the economic variables; and (iii) that it must not be regarded as a mere artificial model disconnected from reality, but as a device to understand how actual economies work. We therefore conclude that the scope of Walras's work can be better grasped by interpreting his equilibrium system as aiming to describe a long-period position of the economy. [ABSTRACT FROM AUTHOR]