The balance of payments constrained growth rate and the natural rate of growth: new empirical evidence

Matteo Lanzafame

MPRA Paper from University Library of Munich, Germany

Abstract: This paper implements a panel approach to investigate the empirical relevance of ‘Thirlwall’s Law’, which states that long-run growth must be consistent with balance of payments (BOP) equilibrium and is, thus, determined on the demand side. Building on ARDL modelling, mean-group and pooled mean-group estimation methods, we use annual data over the 1960-2010 years for a panel of 22 OECD countries and find significant support for the ‘Law’. Next, we also explore empirically the hypothesis that the BOP-constrained growth rate (yb) must equal the natural (or potential) rate of growth (yn) and find that the data do not reject this hypothesis. Finally, we adopt a new approach, based on panel Granger-causality methods, to explore the direction of causality between yb and yn. The results indicate the existence of unidirectional long-run causality from yb to yn , thus reinforcing the view, embodied in the ‘Law’, that long-run growth is demand-determined and constrained by the BOP.

Keywords: Balance of payments; endogenous growth; panel cointegration; pooled mean-group estimation; panel Granger-causality (search for similar items in EconPapers)
JEL-codes: C23 F43 O40 O57 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/33461/1/MPRA_paper_33461.pdf revised version (application/pdf)

Related works:
Journal Article: The balance of payments-constrained growth rate and the natural rate of growth: new empirical evidence (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:33130

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