Introduction

Elias Soukiazis and Pedro Cerqueira

A chapter in Models of Balance of Payments Constrained Growth, 2012, pp 1-7 from Palgrave Macmillan

Abstract: Abstract This volume includes a number of selected papers that were presented at the workshop, “Thirlwall’s Law and Balance of Payments Constrained Growth” held at the Faculty of Economics, University of Coimbra, Portugal, on 24 and 25 June 2011. This workshop was organized to honor Professor Anthony Thirlwall’s “Law” of “Balance of Payments Constrained Growth” that first was published in the Italian Journal Banca Nazionale del Lavoro Quarterly Review in March 1979. The paper was entitled “The Balance of Payments Constraint as an Explanation of International Growth Rate Differences”, and since its publication it has generated a vast debate on the validity of Thirlwall’s Law motivating people to work on the same subject and testing the Law for different countries and groups of countries, both developed and under-developed. The simple proposition of Thirlwall’s Law is that a country’s actual growth rate can be predicted by the ratio of export growth to the income elasticity of the demand for imports which is the dynamic form of Harrod’s foreign trade multiplier. This simple rule went even further to suggest that no country can grow faster than its balance of payments equilibrium growth rate unless external deficits can be financed continuously by capital inflows, which normally they cannot. The simple Thirlwall model has been extended to include explicitly capital flows and relative price changes both theoretically and empirically.

Keywords: Exchange Rate; Real Exchange Rate; Income Elasticity; Neoclassical Theory; External Imbalance (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1057/9781137023957_1

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