Growth and the Balance-of-Payments Constraint
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.
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Volume (Year): 52 (1999)
Issue (Month): 4 ()
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