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Criticisms and defences of the balance-of-payments constrained growth model: some old, some new

PSL Quarterly Review

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Title Criticisms and defences of the balance-of-payments constrained growth model: some old, some new
 
Creator McCombie, John S.L.
 
Subject —
Balance-of-payments, growth, Thirlwall’s law
E12, O41
 
Description This paper assesses various critiques that have been levelled over the years against Thirlwall’s Law and the balance-of-payments constrained growth model. It starts by assessing the criticisms that the law is largely capturing an identity; that the law of one price renders the model incoherent; and that statistical testing using cross-country data rejects the hypothesis that the actual and the balance-of-payments equilibrium growth rates are the same. It goes on to consider the argument that calculations of the “constant-market-shares” income elasticities of demand for exports demonstrate that the UK (and by implication other advanced countries) could not have been balance-of-payments constrained in the early postwar period. Next Krugman’s interpretation of the law (or what he terms the “45-degree rule”), which is at variance with the usual demand-oriented explanation, is examined. The paper next assesses attempts to reconcile the demand and supply side of the model and examines whether or not the balance-of-payments constrained growth model is subject to the fallacy of composition. It concludes that none of these criticisms invalidate the model, which remains a powerful explanation of why growth rates differ.  JEL Codes: E12, O41
 
Publisher Economia civile
 
Contributor —
 
Date 2011-12-22
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
—
 
Format application/pdf
 
Identifier http://annalidibotanica.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9405
 
Source PSL Quarterly Review; Vol 64, No 259 (2011)
PSL Quarterly Review; Vol 64, No 259 (2011)
2037-3643
ISSN 2037-3635
 
Language eng
 
Relation http://annalidibotanica.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9405/9300
 
Rights Copyright (c) 2016 John S.L. McCombie
http://creativecommons.org/licenses/by-nc-nd/4.0