There’s a 1969 paper Income And Price Elasticities In World Trade by H. S. Houthakker and Stephen P. Magee where they realise that nations may have a balance-of-payments constraint:
In the econometric analysis of international trade the emphasis has traditionally been on price elasticities. The practical and theoretical importance of price elasticities is beyond question, and we shall have something to contribute to their estimation, but it has also been increasingly realized that income elasticities are at least as important, especially in a growing economy. Thus Harry Johnson [7] has pointed out that under certain conditions the direction in which the trade balance moves over time depends critically on each country’s income elasticity of demand for imports and on the rest of the world’s income elasticity of demand for each country’s exports.
Johnson showed that if trade is initially balanced in a two-country model, if prices are constant and if income growth is the same in both countries, then the trade balance between them can still change through time if their respective income elasticities of demand for the other’s exports differ. In this case, the country with a higher income elasticity of demand for its imports than the foreign income elasticity of demand for its exports will experience more rapid import growth than export growth, a deterioration in its trade balance and eventual pressure on its exchange rate. For this country, even relatively slow domestic income growth may be insufficient to cure payments imbalances if the relative income elasticities are sufficiently adverse.
We shall show, in fact, that disparities in income elasticities appear to be significant in the case of certain countries whose balance of payments performance is either much worse or much better than might be expected on other grounds. The United Kingdom and Japan are polar examples; the United States is also in this category.
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References
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- Johnson, H. G., International Trade and Economic Growth (Cambridge: Harvard University Press, 1958).
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That’s not quite as sharp as Nicholas Kaldor’s work but yet some neoclassical economists acknowledging it is quite something.