The limits of balance of payments to economic growth of Argentina, Brazil, Mexico and Chile

The most common approaches to the limiting factors of economic growth in developing nations stress causes such as low savings rates, scarceness of human capital and the fragility of institutions which includes property rights, financial systems and the weakness of the State. This article presents a different point of view which is as follows: that the balance of payments is the main restriction to economic growth. No country is able to sustain a rate of economic growth if it leads to an unsustainable current account deficit. In the economic literature, this principle is known as the Thirlwall Law and is the basis in this article of the analysis of the economic growth of four Latinamerican countries during the last decade. It concludes that the most important limiting factor to economic growth of these countries is the necessity to avoid an unsustainable external deficit. The events of the last decade show that if this restriction is ignored, an interruption of economic growth becomes unavoidable.