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The Balance of Payments Constraint as an Explanation of International Growth Rate Differences


  • Anthony Philip Thirlwall

    () (University of Kent)


The paper shows that if long-run balance of payments equilibrium on current account is a requirement then a country's long run growth rate can be approximated by the ratio of the growth of exports to the income elasticity of demand for imports. The model fits well the experience of eighteen OECD countries. It is output, not relative prices, that adjusts the balance of payments, contrary to the neoclassical orthodoxy. Growth can be demand constained by the balance of payments.

Suggested Citation

  • Anthony Philip Thirlwall, 1979. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 32(128), pages 45-53.
  • Handle: RePEc:psl:bnlqrr:1979:01

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    References listed on IDEAS

    1. Drazen, Allan, 1985. "A general measure of inflation tax revenues," Economics Letters, Elsevier, vol. 17(4), pages 327-330.
    2. Seitz, Franz, 1995. "The circulation of Deutsche Mark abroad," Discussion Paper Series 1: Economic Studies 1995,01e, Deutsche Bundesbank.
    3. Daniel Gros & Guyvandille, 1995. "Seigniorage and EMU: The Fiscal Implications of Price Stability and Financial Market Integration," Journal of Common Market Studies, Wiley Blackwell, vol. 33(2), pages 175-196, June.
    4. Joseph Daniels & David Hoose, 1996. "Reserve requirements, currency substitution, and seigniorage in the transition to European monetary union," Open Economies Review, Springer, vol. 7(3), pages 257-273, July.
    5. Heymann, Daniel & Leijonhufvud, Axel, 1995. "High Inflation: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288442.
    6. Klein,Martin & Neumann,Manfred, "undated". "Seignorage: What is it and who gets it?," Discussion Paper Serie B 124, University of Bonn, Germany.
    7. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
    8. Richard D. Porter & Ruth Judson, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 883-903.
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    More about this item


    balance of payments; growth; dynamic Harrod trade multiplier;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies


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