Growth transitions and the balance-of-payments constraint
Excellent Mhlongo and
Kevin Nell ()
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Excellent Mhlongo: College of Business and Economics, School of Economics, University of Johannesburg, South Africa
Review of Keynesian Economics, 2019, vol. 7, issue 4, 498-516
This paper re-evaluates the recent criticisms of 'Thirlwall's law' against the literature on growth transitions. The unpredictable nature of growth transitions in developing economies suggests that the evidence derived from single-regime regression models, on which critics have based most of their arguments, is only suggestive about the long-run causes of growth. A rigorous test of Thirlwall's law requires a more in-depth analysis of turning points in a developing country's growth performance, and whether the growth law accurately predicts the sustainability of growth transitions. These arguments are illustrated with an application to South Africa over the period 1960â€“2017. The results show that it is misleading to evaluate Thirlwall's law across a single regime. Once regime shifts are controlled for, the growth law accurately predicts South Africa's growth performance during 1977â€“2003, and sheds light on the sustainable and unsustainable nature of growth transitions across the sub-periods 1960â€“1976 and 2004â€“2017, respectively. Since the literature on growth transitions identifies a competitive exchange rate as an initiating source of growth, rather than an individual long-run determinant, the omission of the level of the real exchange rate from the original growth law should not be regarded as a major weakness.
Keywords: balance-of-payments-constrained growth; growth transitions; multiple regimes; South Africa (search for similar items in EconPapers)
JEL-codes: E12 F43 O11 O24 O25 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:elg:rokejn:v:7:y:2019:i:4:p498-516
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