Commodity dependence and balance-of-payments constrained growth theory: the case of South America, 1962–2023

Abstract

This paper builds a bridge between Post Keynesian and Structuralist traditions, adding some Neo-Schumpeterian insights, by developing a theoretical growth model tailored to the specific features of South American commodity-dependent economies. Within the framework of balance-of-payments constrained growth models – and supported by extensive evidence of their relevance to South America – the requirement of balanced international trade is preserved. However, following a Structuralist approach, the model explicitly incorporates the region’s commodity dependence by introducing an additional export sector that is a price-taker of prices set in foreign currency at a global level and which relies on finite natural resources for production. The theoretical formulation reproduces well-known stylized facts of the region, such as the central role of commodity prices in shaping economic growth. Moreover, it sheds light on the importance of the real exchange rate and analytically disentangles its multiple channels of influence on growth, highlighting the complex macroeconomic effects of exchange rate fluctuations. Empirical validation, based on both static and dynamic panel estimations, confirms the consistency of the proposed relationships. The empirical analysis draws on a novel historical dataset specifically constructed for this research, integrating multiple large and heterogeneous databases to provide new evidence on the dynamics of South American economies.