Natural, effective and BOP-constrained rates of growth: Adjustment mechanisms and closure equations

The interaction between the effective (𝑦𝐸) and the natural rate of growth (𝑦𝑁) is a central part – implicitly or explicitly addressed –
in all growth models. A stable equilibrium requires these two rates to converge; otherwise, one or more macroeconomic variables
would rise or fall without bounds. In addition, the Keynesian tradition stressed the balance-of-payments (BOP) constraint as a
determinant of the equilibrium growth rate in the long run (𝑦𝐵𝑃). This paper discusses alternative mechanisms through which these
three growth rates may converge, and relates these mechanisms to different theoretical approaches to the determinants of growth.
With this objective, we extend the model suggested by Setterfield (2011) to include the evolution of the North-South technology gap
and the pattern of specialization as components of the Kaldorian productivity regime. Drawing from the Schumpeterian literature,
we emphasize the importance of the national system of innovation (NSI) in shaping the learning parameters and outcomes of the
model. A successful development strategy emerges when the NSI enhances indigenous technological capabilities that allow the
Southern economy to catch-up with the technological frontier.