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The aim of this article is to clarify the Balance-of-Payments (BOP)-constrained growth approach (Thirlwall's Law) in relation to the convergence theories. According to Thirlwall's Law, we determine the balance of payments equilibrium growth rate of an economy by the ratio of the income elasticities of the demand for exports and imports and the growth of foreign demand. Using Convergence Quadrants Diagram, we focused on an analysis of different phases of non-price convergence or divergence in the region of Central and Eastern Europe (CEE). The obtained results show that almost all countries of the CEE region grew at a higher rate than the one consistent with the BOP equilibrium. Moreover, it is proven that the convergence of the CEE region is unsustainable considering the lower ratio of income elasticities and increasing external debt. [ABSTRACT FROM AUTHOR]

The balance-of-payments (BoP) can act as a constraint on the output growth rate because it limits the growth of demand. This article focuses on verifying whether the hypothesis that BoP constrains growth is suitable for explaining the growth performance of several transition economies in Central and Eastern Europe that joined the European Union after 2004. According to Thirlwall’s law, the BoP equilibrium growth rate in an economy is determined using the ratio of the income elasticities of demand for exports and imports and the growth in foreign demand. The results obtained are compared with the multisector version of Thirlwall’s law as an alternative approach that considers the structure of the economy and how specialization affects BoP-constrained growth. The results show that almost all the transition countries in the sample grew at a higher rate than is consistent with the BoP equilibrium and that the multisector version of this approach predicts actual growth in these countries. [ABSTRACT FROM PUBLISHER]