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

Author

Listed:
  • Anthony P. Thirlwall

    (University of Kent, Department of Economics)

Abstract

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 P. Thirlwall, 2011. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," PSL Quarterly Review, Economia civile, vol. 64(259), pages 429-438.
    • Handle: RePEc:psl:pslqrr:2011:44
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9407/9302
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    Keywords

    balance of payments; growth; dynamic Harrod trade multiplier;
    All these keywords.

    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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