Criticisms and defences of the balance-of-payments constrained growth model: some old, some new
DOI:
https://doi.org/10.13133/2037-3643/9405Keywords:
Balance-of-payments, growth, Thirlwall’s lawAbstract
This paper assesses various critiques that have been levelled over the years against Thirlwall’s Law and the balance-of-payments constrained growth model. It starts by assessing the criticisms that the law is largely capturing an identity; that the law of one price renders the model incoherent; and that statistical testing using cross-country data rejects the hypothesis that the actual and the balance-of-payments equilibrium growth rates are the same. It goes on to consider the argument that calculations of the “constant-market-shares” income elasticities of demand for exports demonstrate that the UK (and by implication other advanced countries) could not have been balance-of-payments constrained in the early postwar period. Next Krugman’s interpretation of the law (or what he terms the “45-degree rule”), which is at variance with the usual demand-oriented explanation, is examined. The paper next assesses attempts to reconcile the demand and supply side of the model and examines whether or not the balance-of-payments constrained growth model is subject to the fallacy of composition. It concludes that none of these criticisms invalidate the model, which remains a powerful explanation of why growth rates differ.
JEL Codes: E12, O41
References
ARAUJO R.A., LIMA G.T. (2007), “A structural economic dynamics approach to balance-of-payments-constrained growth”, Cambridge Journal of Economics, vol. 31 n. 5, pp. 755-774.
BALASSA B. (1978), “Exports and economic growth. Further evidence”, Journal of Development Economics, vol. 5 n. 2, pp. 181-189.
BALASSA B. (1979), “Export composition and export performance in the industrial countries, 1953-71”, Review of Economics and Statistics, vol. 61 n. 4, pp. 604-607.
BALASSA B. (1983), “Outward versus inward orientation once again”, World Economy, vol. 6 n. 2, pp. 215-218.
BLECKER R.A., RAZMI A. (2010), “Export-led growth, real exchange rates and the fallacy of composition”, in Setterfield M. (ed.), Handbook of alternative theories of economic growth, Cheltenham: Edward Elgar.
CHOW P.C.Y. (1987), “Causality between export growth and industrial development: empirical evidence from MICs”, Journal of Development Economics, vol. 26 n. 1, pp. 55-63.
CLINE W.R. (1982), “Can the East Asian model of development be generalized?”, World Development, vol. 10 n. 2, pp. 81-90.
CONNELL D. (1979), “The U.K.’s performance in export markets – Some evidence from international trade data”, Discussion Paper, n. 6, National Economic Development Office.
CORNWALL J. (1977), Modern capitalism: its growth and transformation. London: Martin Robertson.
CRAFTS N.F.R (1988), “The assessment: British economic growth over the long run,” Oxford Review of Economic Policy, vol. 4 n. 1, pp. i-xxi.
CRAFTS N.F.R (1991), “Economic growth”, in Crafts N.F.R. and Woodward N.W.C. (eds.) with the assistance of B.F. Duckham, The British economy since 1945, Oxford: Clarendon Press.
DARRAT A.F. (1987), “Are exports an engine of growth? Another look at the evidence”, Applied Economics, vol. 19 n. 2, pp. 1153-1165.
DAVIDSON P. (2006), “Keynes, Post Keynesian analysis, and the open economies of the twenty-first century”, in Arestis P., MCCOMBIE J.S.L. and Vickerman R.W. (eds.),Growth and economic development. Essays in honour of A.P. THIRLWALL, Cheltenham: Edward Elgar.
EDWARDS E. (1993), “Openness, trade liberalization, and growth in developing countries”, Journal of Economic Literature, vol. 31, September, pp. 1358-1393.
ELTIS W. (1979) “Comment” on Singh A., “North Sea oil and the reconstruction of UK oil industry” in Blackaby F.T. (ed.), De-industrialisation, London: Heinemann.
FELIPE J. (2009),Inclusive growth, full employment, and structural change implications and policies for developing Asia,London: Anthem Press.
GOLDSTEIN M., KHAN M.S. (1978), “The supply and demand for exports: a simultaneous approach,” Review of Economics and Statistics, vol. 60 n. 2, pp. 275-286.
GOUVEA R.R., LIMA G.T. (2010), “Structural change, balance of payments constraint and economic growth: evidence from the multisectoral THIRLWALL’s Law”, Journal of Post Keynesian Economics, vol. 33 n. 1, pp. 169-204.
HARROD R.F. (1933), International economics, Cambridge: Cambridge University Press.
HARROD R.F. (1939), “An essay in dynamic theory”, Economic Journal, vol. 49 n. 193, pp. 14-33.
HAUSMANN R., HWANG J., RODRIK D. (2007), “What you export matters”, Journal of Economic Growth, vol. 12 n. 1, pp. 1-25.
HAVRYLYSHYN O. (1990), “Penetrating the fallacy of export composition”, in Singer H., Hatti N., Tandon T. (eds.), North-South trade in manufactures, Delhi: Indus Publishing.
HIDALGO C.A., KLINGER B., BARABASI A.L., HAUSMANN R. (2007), “The product space conditions the development of nations”, Science, vol. 317, July, pp. 482-487.
HOUTHAKKER H.S., MAGEE S.P. (1969), “Income and price elasticities in world trade”, Review of Economics and Statistics, vol. 51 n. 2, pp. 111-125.
KALDOR N. (1957), “A model of economic growth”, Economic Journal, vol. 67 n. 268, pp. 591-624.
KALDOR N. (1966), The causes of the slow rate of economic growth of the United Kingdom. An inaugural lecture,Cambridge: Cambridge University Press.
KALDOR N. (1979), “Comment” on Cairncross A., “What is de-industrialisation?”, in Blackaby F.T. (ed.), De-industrialisation, London: Heinemann.
KINDLEBERGER C.P. (ed.) (1967), Europe’s postwar growth; the role of labor supply, Cambridge (MA): Harvard University Press.
KRUGMAN P. (1989), “Differences in income elasticities and trends in real exchange rates”, European Economic Review, vol. 33 n. 5, pp. 1001-1046.
LAMFALUSSY A. (1961), Investment and growth in mature economies, the case of Belgium, London: Macmillan.
LEIBENSTEIN H. (1966), “Allocative efficiency vs. ‘X-efficiency’”, American Economic Review, vol. 56 n. 3, pp. 392-415.
LEÓN-LEDESMA M.A., THIRLWALL A.P. (2002), “The endogeneity of the natural rate of growth”, Cambridge Journal of Economics, vol. 26 n. 24, pp. 441-459.
MCCOMBIE J.S.L. (1980) “On the quantitative importance of KALDOR’s Laws”, Bulletin of Economic Research, vol. 32 n. 2, pp. 102-112.
MCCOMBIE J.S.L. (1981), “Are international growth rates constrained by the balance of payments? A comment on professor THIRLWALL”, BNL Quarterly Review, vol. 139, pp. 455-458.
MCCOMBIE J.S.L. (1985), “Economic growth, the Harrod foreign trade multiplier and the Hicks super-multiplier”, Applied Economics, vol. 17 n. 1, pp. 55-72.
MCCOMBIE J.S.L. (2004), “Economic growth, the Harrod foreign trade multiplier and the Hicks super-multiplier”, in MCCOMBIE and THIRLWALL.
MCCOMBIE J.S.L. (1989), “‘THIRLWALL’s Law’ and balance of payments constrained growth - a comment on the debate”, Applied Economics, vol. 21 n. 5, pp. 611-629.
MCCOMBIE J.S.L. (1992), “‘THIRLWALL’s Law’ and balance of payments constrained growth: more on the on the debate”, Applied Economics, vol. 24 n. 5, pp. 493-512.
MCCOMBIE J.S.L. (1993), “Economic growth, trade inter-linkages and the balance-of-payments constraint”, Journal of Post Keynesian Economics, vol. 15 n. 4, pp. 471-505.
MCCOMBIE J.S.L. (2004), “Economic growth, trade inter-linkages and the balance-of-payments constraint”, in MCCOMBIE and THIRLWALL (2004).
MCCOMBIE J.S.L, Pugno M. and Soro B. (eds.) (2002), Productivity growth and economic performance: essays on Verdoorn’s Law, Basingstoke: Palgrave Macmillan.
MCCOMBIE J.S.L. and THIRLWALL A.P. (1994), Economic growth and the balance-of-payments constraint, Basingstoke: Macmillan.
MCCOMBIE J.S.L. and THIRLWALL A.P. (2004), Essays on balance of payments constrained growth. Theory and evidence, London: Routledge.
MCGREGOR P.G. and SWALES J.K. (1985), “Professor THIRLWALL and balance of payments constrained growth”, Applied Economics, vol. 17 n. 1, pp.17-32.
MCGREGOR P.G. and SWALES J.K. (1986), “Balance of payments constrained growth: a rejoinder”.
MCGREGOR P.G. and SWALES J.K. (1991), “THIRLWALL’s Law and balance of payments constrained growth: further comment on the debate”, Applied Economics, vol. 23 n. 1, pp. 9-20.
MARIN D. (1992), “Is the export-led growth hypothesis valid for industrialized countries?”, The Review of Economics and Statistics, vol. 74 n. 4, pp. 678-688.
MAYER J. (2002), “The fallacy of composition: a review of the literature”, World Economy, vol. 25 n. 6, pp. 875-894.
MYRDAL G. (1957), Economic theory and underdeveloped regions, London: Duckworth.
NELL K. (2003), “A generalized version of the balance-of-payments growth model: an application to neighbouring regions”, International Review of Applied Economics, vol. 17 n. 3, pp. 249-267.
NELL K. (2004), “A generalized version of the balance-of-payments growth model: an application to neighbouring regions”, in MCCOMBIE and THIRLWALL.
PACHECO-LÓPEZ P., THIRLWALL A.P. (2007), “Trade liberalisation and the trade-off between growth and the balance of payments in Latin America”, International Review of Applied Economics, vol. 21 n. 4, pp. 469-490.
PALLEY T.I. (2002), “Pitfalls in the theory of growth: an application to the balance-of-payments-constrained growth model”, in Setterfield M. (ed.), The economics ofdemand-led growth, Cheltenham: Edward Elgar, pp. 115-125.
PALLEY T.I. (2003), “Export-led growth: evidence of developing country crowding-out”, in Arestis P., Baddeley M. and MCCOMBIE J.S.L. (eds.), Economic integration, regionalism and globalization, Cheltenham: Edward Elgar.
PASINETTI L.L. (1993), Structural economic dynamics, Cambridge: Cambridge University Press.
SETTERFIELD M. (2006), “THIRLWALL’s Law and Palley’s pitfalls: a reconsideration”, in Arestis P., MCCOMBIE J.S.L. and Vickerman R. (eds.), Growth and economic development: essays in honour of A.P. THIRLWALL, Cheltenham: Edward Elgar.
SETTERFIELD M. (2011) “The remarkable durability of THIRLWALL’s Law”, PSL Quarterly Review, vol. 64 n. 259 (2011), pp. 393-427.
SHIRAZI N.S., MANAP T.A.A. (2004), “Exports and economic growth nexus: the case of Pakistan, Pakistan Development Review, vol. 43 n. 4, pp. 563-581.
THIRLWALL A.P. (1979), “The balance of payments constraint as an explanation of international growth rate differences”, BNL Quarterly Review, vol. 128 n. 791, pp. 45-53.
THIRLWALL A.P. (2004), “The balance of payments constraint as an explanation of international growth rate differences”, in MCCOMBIE and THIRLWALL.
THIRLWALL A.P. (1981), “Balance of payments constrained growth: a reply to Mr. MCCOMBIE”, BNL Quarterly Review, vol. 139, pp. 458-459.
THIRLWALL A.P. (1986), “Balance of payments constrained growth: a reply to McGregor and Swales”, Applied Economics, vol. 18 n. 12, pp. 1259-1263.
Downloads
Published
How to Cite
Issue
Section
License
