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    • Besides theses extensions pointed by Le n Ledesma other majo

    2018-10-30

    Besides theses extensions pointed by León-Ledesma (2002), other major developments should be highlighted: the first is a variety of works that highlights the “composition effect”, that is, the idea that the sectorial composition of the productive structure of an economy (and especially of its exports) is critical to explain their growth rates compatible with the external constraint (Araujo and Lima, 2007; among others). The main argument of these models is that changes in the composition of demand, which are not reflected in changes in elasticities, but comes from changes in the share of each sector in the aggregate exports or imports affect economic growth. In this context, assuming that elasticities reflect largely the quinacrine and sophistication of the productive structure of an economy, variables such as the level of the real exchange rate and the degree of development of the National Innovation System are considered able to induce structural changes and bring about changes in these elasticities (Missio and Jayme Jr., 2012).
    The Kaldor–Dixon–Thirlwall model modified Based on the above discussion two modifications are proposed to the KDT model:in which, for convenience, it is assumed the following functional formula:where () is a positive constant and . Furthermore, it is assumed that;where is the currently level of the real exchange rate of the economy and is industrial equilibrium level, defined as the exchange rate level that would enable efficient producers of manufactured goods to export and preserve their profitability (Bresser-Pereira et al., 2015). Our case of interest is when . If is set in its industrial equilibrium level it means that it is at the level that allows domestic industrial enterprises to operate competitively in the international market with technologies that are at the cutting edge of their economic activity. Considering the results of Eqs. (15a) and (15d) in Eqs. (13) and (14), it is possible to present more specifically the behavior of interest in this analysis. As can be seen, only when the exchange rate reaches its industrial equilibrium level is that the positive effects on the exports income elasticities, for example, begin to appear. The intuition is that from that level corporate profitability is sufficient to implement their investment projects including those related to research and innovation. Then, this allows for greater complexity of the production structure that, in turn, translates into more productive diversification by country and a greater degree of technology embedded in these products (i.e., high/low income elasticity of exports/imports). Before reaches the industrial equilibrium level, devaluations are negatively (positively) correlated with the income elasticity of exports (imports) (Eqs. (15b) and (15c)). Following the work of Fagerberg (1988) and Verspagen (1993), there is a close relationship between the level of technological development and the level of economic development between different countries and the economic growth rate of a country is positively influenced by the growth rate of investment to reduce the technological gap. Still, the rate at which a country explores the existing possibilities for the technological gap depends on which resources are mobilized for the transformation of its social structure, institutional and economic. To Abramovitz (1986) the combination of technological gap and social empowerment defines the potential of a country to increase their productivity through the catching up long-term process. According to the author: In the literature of catching up processes countries with low levels of per capita income tend to grow at higher rate, which may eventually lead to convergence over time in relation to developed countries in terms of per capita income and economic growth rates. According to Verspagen: It is assumed that the learning capacity of the economy depends on the initial stock of knowledge, spending on Research and Development (R&D) and the capacity of spillovers assimilation. Thus, it is assumed that the National Innovation System (NIS) takes the following functional form:with e .