The growth performance and prospects in the Euro Area: a balance-of-payments approach

This paper aims to apply the balance of payments constrained-growth model to explain Euro area growth performance in the last forty years and to discuss likely prospects for the future. After a formal reconsideration of the long-run and short-run arguments supporting the validity of the post-Keynesian approach to economic growth, a simplified and an extended version of the basic model are outlined. The application of these models to the Euro area experience shows that Thirlwall’s Law performs quite well in explaining growth in all decades under consideration. The fundamental reasons behind the recent unsatisfactory EMU growth experience, therefore, appear to be a decreasing export dynamics and a rising dependence on imports. Given current trends, the prospects for the future appear to be gloomy, unless structural reforms of the productive system are promoted in order to improve overall EMU competitiveness.