Balance of Payment Constraint on Essay

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However, in recent years the country has experience economic growth by changing the old way that it did business and moving to more modern techniques.

Ireland was able to transform its sluggish economy by moving away from the industrial base that it was used to for so many years to high-technology specialization (Garcimartin et al., 2008). This shows that there is truth to Thirlwall statement tying slow growth to a low demand in whatever the country is producing. We live in a world where technology has become necessary. Those that refuse to jump on the wagon will get left behind and this is exactly what was happening to Ireland until they decided to change their base.

Changing from an industrial base to one that specializes in technology wasn't the only thing that saved Ireland's slow economy. Garcimartin et al., state that the economy also experience growth because of the outward-oriented economic policy they adopted; the increase in foreign direct investment; and, by its social partnerships which compensated low wages with income tax cuts (2008, p. 410). Ireland went several steps further in that they not only learned to produce goods that are in high demand (as Thirlwall suggests), but they also were smart enough to gain foreign investors and give income tax breaks as an incentive.

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Countries must still pay attention to the balance of payments and the constraint it can have on economic growth. Supply must always keep up with demand in order to achieve equilibrium. For some countries, economic growth may seem like an unattainable goal because if the demand for domestic output is high, they will certainly experience a deficit. The way to maintain the balance of payments seems to be for countries to do what Ireland did. If demand is high and supply cannot keep up, there must be incentives involved in order entice foreign investment. If wages are low, there should be income tax incentives.

The balance of payments constraint on growth appears to be a difficult macroeconomic concept to understand. Thirlwall and others have been able to break down this concept into digestible parts to make the concept more understandable (at least in theory). The bottom line is that each country must figure out what it needs to do in order to keep the balance of payments constraint from preventing the economic growth that it can experience. Modeling the techniques of successful countries is one way to start......

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