Balance‐of‐payments‐constrained growth in a multisectoral framework

Abstract

This paper contributes to the literature on balance-of-payments-constrained growth by providing an innovative empirical evaluation of a disaggregated version of the socalled Thirlwall"s Law derived from a Pasinettian multisectoral framework. After estimating sectoral elasticities of exports and imports for a considerable panel dataset of 90 countries over the period 1965-1999, we have performed two empirical exercises. First, we grouped countries together by income level and evaluated a multisectoral balance-of-paymentsconstrained growth model by analyzing prediction errors and mean absolute deviations. Second, we carried out a regression validity test on the results. Our main findings give support to the validity of the multisectoral version of Thirlwall"s Law, providing therefore further understanding of the structural determinants of the uneven international development and guidance for the design of growth-enhancing national structural policies. JEL Classification Codes: E10, F43, O19 † We would like to thank Anthony Thirlwall, Frederico G. Jayme Jr., and Gabriel Porcile for helpful comments on earlier drafts of this paper. Raphael Rocha Gouvea gratefully acknowledges research funding granted by The International Celso Furtado Center for Development Policies, while Gilberto Tadeu Lima gratefully acknowledges research funding provided by the Brazilian National Council of Scientific and Technological Development (CNPq) and the Brazilian Coordination for the Improvement of Higher Level Personnel (CAPES). Gilberto Tadeu Lima worked on this draft while visiting the Economics Department of the University of Massachusetts Amherst, whose kind hospitality and provision of a stimulating academic environment should be gratefully acknowledged as well.

A Thirlwall’s Law Application to International Trade in Services

“…That being said, this paper closely follows the work of Gouvêa and Lima (2013), but applies it using data from the disaggregated international trade in services. The significant implication of mstl is that changes in the composition of demand or the structure of production, which are not reflected in changes in income-elasticities but come through changes in the share of each sector in aggregate exports or imports, also matter in the long-run growth.…”

“…Despite this, there is a panoply of further applications of Thirlwall's law from its original version. Other versions introduce capital flows and terms of trade (Thirlwall and Hussain, 1982;Garcimartin, Kvedaras and Rivas, 2016), and multisectoral (Araujo and Lima, 2007;Gouvêa and Lima, 2010), or multiproduct (Gouvêa and Lima, 2013;Romero and McCombie, 2016) applications. Several studies show a proximity between the simple bpcg and the observed growth rate (McCombie and Thirlwall, 1997;Alonso, 1999;Perraton, 2003).…”

Influence of demand and supply factors on trade flows: Evidence for Argentina (1996–2016)

“…However, the weighting structure "implies that a country can still raise its growth rate even in case such a rise in the growth of outside income does not occur, provided it can manage to change the sectoral composition of exports and/or imports accordingly" (Araujo & Lima, 2007, p. 12). Gouvêa and Lima (2013) and Romero and McCombie (2016) have tested the Multi Sectoral Thirlwall's law by resorting to disaggregated elasticities, although the latter included only developed countries. 2 Moreover, Bernat (2015) estimated sectoral trade elasticities based on the technology intensity for the South American region, controlling by exchange rate volatility.…”

“…Gouvêa and Lima (2013) and Romero and McCombie (2016) have tested the Multi Sectoral Thirlwall's law by resorting to disaggregated elasticities, although the latter included only developed countries. Moreover, Bernat (2015) estimated sectoral trade elasticities based on the technology intensity for the South American region, controlling by exchange rate volatility.…”

The Effect of International Currency Crises on the Balance of Payments: Evidence From Jordan

“…Balance of payment (BoP) has attracted significant attention globally, specifically in economic and finance domains (Batool, Memood, & Jadoon, 2015;Gouvea & Lima, 2013;Hutchison & Noy, 2002;Kalayci, 2019;Kandil, 2009; R. S. Ribeiro, McCombie, & Lima, 2016;R. S. M. Ribeiro, 2019).…”