Investments, balance of payment equilibrium and a new industrial policy in Europe

ERSA conference papers from European Regional Science Association

Abstract: This paper aims to indicate that an economic recovery of the European economy can be pulled by an increase of the aggregate demand and by the adoption of a new industrial policy having a territorial dimension. While the Domar's and Thirlwall's model indicates that growth is determined by the growth of exports and does not consider investments, the paper indicates that an appropriate distribution of investments between the exporting and the domestic sector can determine both an increase of GDP and an equilibrium of the balance of payment. The model of innovation and investment pulled growth illustrated in the paper, indicates that a greater immaterial investment in R&D, education and project design and planning leads to greater innovation; this latter is the factor leading to an increase of the propensity to invest by the firms and then the investment leads to an increase of GDP, which may be compatible with the constraint of the equilibrium of the balance of payment. The paper clarifies the specific characteristics of the domestic goods and services, such as those of: housing, mobility, health and education, leisure and culture, energy and environment, which aim to respond to the increasing needs by the European citizens of new goods and services and better infrastructures, especially in the largest European cities. A new industrial policy differs from horizontal policies aiming to enhance the supply of the production factors or by the traditional industrial policies focusing on key technologies and sectors or on selected leading companies and should be pulled by the demand and innovation and be organized according to the new markets (lead-markets) and productions, which are emerging in developed countries notwithstanding the current slow growth. JEL Codes: E14, L52, O14, O18, O33, Keywords: balance of payment, investment, innovation, industrial structure, industrial policies, macroeconomic policies

Keywords: balance of payment; investment; innovation; industrial structure; industrial policies; macroeconomic policies (search for similar items in EconPapers)
JEL-codes: E14 L52 O14 O18 O33 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-ino
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