The Balance of Payments Constraint as an Explanation of International Growth Rate Differences

PSL Quarterly Review, Vol. 64, No. 259, pp. 429-438, 2011

10 Pages Posted: 2 May 2012

See all articles by A. P. Thirlwall

A. P. Thirlwall

University of Kent - Canterbury Campus

Date Written: December 15, 2011

Abstract

The paper shows that if long-run balance of payments equilibrium on current account is a requirement then a country's long run growth rate can be approximated by the ratio of the growth of exports to the income elasticity of demand for imports. The model fits well the experience of eighteen OECD countries. It is output, not relative prices, that adjusts the balance of payments, contrary to the neoclassical orthodoxy. Growth can be demand constrained by the balance of payments.

Keywords: balance of payments, growth, dynamic Harrod trade multiplier

JEL Classification: F32, F43

Suggested Citation

Thirlwall, A. P., The Balance of Payments Constraint as an Explanation of International Growth Rate Differences (December 15, 2011). PSL Quarterly Review, Vol. 64, No. 259, pp. 429-438, 2011, Available at SSRN: https://ssrn.com/abstract=2049757

A. P. Thirlwall (Contact Author)

University of Kent - Canterbury Campus ( email )

Keynes College
Canterbury, Kent CT2 7NP
United Kingdom

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