The Multi-Sectoral Thirlwall’s Law: evidence from 14 developed European countries using product-level data

João Prates Romero () and John McCombie

International Review of Applied Economics, 2016, vol. 30, issue 3, 301-325

Abstract: The paper reports estimates of import and export functions for five technological sectors in 14 developed European countries. These functions have never before been estimated for developed countries adopting a technological classification of sectors. The paper compares estimates of income elasticities found using vector error-correction models employing aggregate deflators, with estimates found using cross-product panels employing product-specific quality-adjusted price indexes recently calculated by Feenstra and Romalis. The results indicate that the income elasticities of imports and exports are higher for medium- and high-tech manufactures, which suggests the importance of moving from the production of simple goods to the production of goods with high technological content. The estimates also suggest that the Multi-Sectoral Thirlwall’s Law holds for the countries analysed, while comparing the estimates revealed that cross-product panels with quality-adjusted prices generate considerably more robust results. The investigation reveals that using a more recent time period generates estimates of income elasticities of demand for primary products and resource-based manufactures that tend to be higher than the estimates found by studies that have used longer time periods, while the opposite holds for low-, medium-, and high-tech manufactures.

Date: 2016
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Working Paper: THE MULTI-SECTORAL THIRLWALL’S LAW: EVIDENCE FROM 14 DEVELOPED EUROPEAN COUNTRIES USING PRODUCT-LEVEL DATA (2016)
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DOI: 10.1080/02692171.2015.1102207

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