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Growth and the Balance-of-Payments Constraint

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Abstract

Thirlwall’s law posits that a country’s economic growth rate (relative to that of the rest of the world) depends on the ratio of its export’s income elasticity of demand to that of its imports. Empirical studies of this hypothesis have been almost entirely supportive, but we argue that the method used is flawed due to its reliance on least-squares estimates of the income elasticities. Using the Johansen procedure, we test for a long-run relationship between domestic and world income for the G7 nations and find little evidence that Thirlwall’s law holds.

Suggested Citation

  • Alexander, Robert & King, Alan, 1999. "Growth and the Balance-of-Payments Constraint," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 52(4), pages 405-425.
  • Handle: RePEc:ris:ecoint:0260
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    Keywords

    Thirlwall’s law; growth; balance of payments;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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