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The debate over ‘Thirlwall's law’: balance-of-payments-constrained growth reconsidered

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  • Robert A. Blecker

    (American University, Washington, DC, USA)

Abstract

Several recent critiques have questioned the theoretical logic of standard models of balance-of-payments-constrained growth (BPCG) and the empirical support for ‘Thirlwall's law’. On the empirical side, critics charge that most econometric estimates of this model have effectively only tested whether exports and imports grow at similar rates in the long run. On the theoretical side, the criticisms have focused on the role of foreign income growth, capital accumulation, relative prices and country size in BPCG models. This article reviews the current state of the debate over these critiques and also offers a brief discussion and evaluation of three alternative models. The alternative models all highlight a significant role for the level of relative prices (or the real exchange rate) in determining long-run growth, which is consistent with recent empirical studies.

Suggested Citation

  • Robert A. Blecker, 2016. "The debate over ‘Thirlwall's law’: balance-of-payments-constrained growth reconsidered," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 13(3), pages 275-290, December.
    • Handle: RePEc:elg:ejeepi:v:13:y:2016:i:3:p275-290
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    Citations

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    Cited by:

    1. Spinola, Danilo, 2020. "Uneven development and the balance of payments constrained model: Terms of trade, economic cycles, and productivity catching-up," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 220-232.
    2. Danilo Spinola, 2021. "The La Marca model revisited: Structuralist goodwin cycles with evolutionary supply side and balance of payments constraints," Metroeconomica, Wiley Blackwell, vol. 72(1), pages 189-212, February.
    3. Sascha Keil, 2023. "The challenging estimation of trade elasticities: Tackling the inconclusive Eurozone evidence," The World Economy, Wiley Blackwell, vol. 46(5), pages 1235-1263, May.
    4. Sartorello Spinola, Danilo, 2020. "Debating the assumptions of the Thirlwall Model: A VECM analysis of the Balance of Payments for Argentina, Brazil, Colombia, and Mexico," MERIT Working Papers 2020-001, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    5. Sascha Keil, 2021. "The Challenging Estimation Of Trade Elasticities:Tackling The Inconclusive Eurozone Evidence," Chemnitz Economic Papers 042, Department of Economics, Chemnitz University of Technology, revised May 2021.

    More about this item

    Keywords

    balance-of-payments-constrained growth; Thirlwall’s law; relative prices; real exchange rates;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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