Thirlwall's law is not a tautology, but some empirical tests of it nearly are
Review of Keynesian Economics, 2021, vol. 9, issue 2, 175-203
This article examines the charge that Thirlwall's law is a theoretical tautology. It shows that a certain approach to empirical testing of that law can sometimes â€“ under conditions analysed here â€“ result in econometric estimates that reflect an approximate identity or 'near-tautology'. Nevertheless, other methods of empirically testing the law are not subject to the near-tautology critique, and hence the theory itself is not a tautology. Econometric estimates for the US and Mexico reveal that the near-tautology critique applies to data for the former but not the latter; the difference in these results is explained by exactly the reasons discussed here. The article offers an alternative interpretation of Thirlwall's law as implying a benchmark for analysing whether national income, rather than relative prices, is the main adjusting factor in response to current-account imbalances in the long run.
Keywords: Thirlwall's law; balance-of-payments-constrained growth; income elasticities; near-tautology critique; income vs price adjustment (search for similar items in EconPapers)
JEL-codes: E12 F32 F43 O47 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:elg:rokejn:v:9:y:2021:i:2:p175-203
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