Levels of Economic Development and the Harrod Foreign Trade
Estimates of export and import demand functions for ninety countries using Stock and Watson (1993) Dynamic OLS are presented. These estimates are then used to examine the relationship between levels of economic development and the dynamic Harrod foreign trade multiplier. We show that there is an inverted U-shape relation, as predicted by Thirlwall (1997), contrary to Bairam (1993, 1997). The absence of an inverse relation between levels of economic development and the dynamic Harrod foreign trade multiplier means that Thirlwall's law implies divergence.
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