Slovak Economic Growth and the Consistency of the Balance-of-payments Constraint Approach
Slovak Economic Growth and the Consistency of the Balance-of-payments Constraint Approach

Summary/Abstract: The present study aims at verifying whether the balance-of-payments con-strained growth approach is suitable for explaining the Slovak growth performance after 1993. We use Thirlwall’s Law to predict actual growth of the Slovak economy based on the estimation of the income elasticities of demand for imports and exports, respectively. The income elasticity of demand for imports is obtained by employing 2SLS assuming that domestic income is endogenous. It is shown that the Slovak economy grew at a higher rate than the rate consistent with the balance-of-payments equilibrium at the cost of accumulating current account deficits. A sustainable solution should be focused on reducing the income elasticity of the de¬mand for imports and increasing exports growth. In order the country not to fall into a balance-of-payments constrained growth trap policies must be designed to reduce the country´s dependence on imports by producing higher quality tradable goods.

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