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Balance of Payments Constrained Growth in the Eurozone: Evidence onMulti-Sector Thirlwall’s Law for a Sample of 9 Founding Euro Countries, 1992-2019

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  • Miguel García Duch

    (Instituto Complutense de Estudios Internacionales (ICEI), Universidad Complutense de Madrid.)

Abstract

This article examines Thirlwall's Law for a sample of 9 eurozone countries from 1992 to 2019. Thirlwall's Law states that a country's long-run growth rate is determined by the ratio of its income elasticities of demand for exports and imports. Using product level data from COMTRADE, this article constructs 5 main sectors based on technological intensity and estimates exports and imports equations for each sector and country in error correction model form. Estimation techniques are seemingly unrelated regressions for exports and three stages least squares for imports. The results reveal significant variations in the income elasticities across sectors and countries, with a strong correlation between higher elasticities for more technological sectors, especially among the so-called central economies. The article concludes that Thirlwall's Law is both a strong predictor of actual growth rates and a useful tool for understanding the role of external imbalances on Eurozone’s economic performance during the last decades.

Suggested Citation

  • Miguel García Duch, 2023. "Balance of Payments Constrained Growth in the Eurozone: Evidence onMulti-Sector Thirlwall’s Law for a Sample of 9 Founding Euro Countries, 1992-2019," Working Papers del Instituto Complutense de Estudios Internacionales 2302, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    • Handle: RePEc:ucm:wpaper:2302
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    Keywords

    : Balance-of-Payments-Constrained Growth; Thirlwall’s Law; Multi-Sector Analysis; Current Account Imbalances; Error Correction Models.;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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