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GEMF

Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 06 de 2011

   

Growth Performance in Portugal Since the 1960’s: A Simultaneous Equation

Approach with Cumulative Causation Characteristics

(Publicado em Journal of Economic Issues 47(1): 147-169, 2013)


Elias Soukiazis
GEMF / Faculdade de Economia, Universidade de Coimbra

Micaela Antunes
Faculdade de Economia, Universidade de Coimbra

Abstract:
The aim of this paper is to explain growth performance in Portugal in the last decades through a multi-equation system with cumulative growth characteristics. The model uses a demand-orientated approach to determine the main relationships which explain growth through a virtuous cycle. The idea is to identify the driving forces of growth with causal linkages and feedback tendencies that turn the process self-sustained. The multi-equation growth model is estimated by 3SLS to capture more efficiently the interrelations between the main growth forces and to control for the endogeneity of the regressors. Our evidence shows that the proposed model can successfully be used to explain the Portuguese growth performance, highlighting the importance of exports competitiveness as the key factor in this process. The cumulative growth process can be interrupted at some points mainly due to the incapacity of transferring productivity gains into domestic prices and to turn the economy more competitive. Capital accumulation is also shown not to affect productivity growth and domestic prices not to improve exports competitiveness. These are the main drawbacks of the Portuguese economy that could explain the failure to achieve higher growth rates in the last decades.

JEL Classification: O1, O3, O4.

Keywords:
Cumulative growth, multi-equation system, exports competitiveness, productivity gap, 3SLS regressions.

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