Structural changes, cointegration and the empirics of Thirlwall's law

Abstract

Thirlwall's law establishes a relation between the long-run growth rate, the growth of exports and the long-run income elasticity of imports. The estimation of this parameter requires cointegration techniques, which in turn require a large span of data, thus exposing the estimates to risks of structural changes. While this problem has been recognized in the literature, the evidence produced is still partial, being concerned with a very limited number of countries, and in some respect unsatisfactory. In this paper we fill this gap by assessing Thirlwall's empirical regularity on a sample of 22 OECD countries using econometric techniques that allows for the presence of shift of unknown date in the long-run parameters. The results are generally supportive of Thirlwall's hypothesis and allow us to reconcile and qualify the evidence provided in the existing literature

Balance-of-payments-constrained growth: the case of Turkey

“…From 1995 onwards, it appears that the Turkish growth rate is above its potential economic growth equilibrium. On the whole, one could say that the empirical results are in line with the previous studies such, as Bairam and Dempster (1991), Perraton (2003) andBagnai (2010). According to Thirlwall and Hussain (1982), countries may grow above the equilibrium rate of growth for long-periods because they attract strong capital inflows.…”

Explaining Italy's economic growth: A balance-of-payments approach with internal and external imbalances and non-neutral relative prices

“…In other words, Italy's potential growth 12 (without harming the balance-of-payments position) is higher than that actually achieved and the explanation for this slower growth rate can be found on the 10 The average current account as a percentage of GDP is -0.46% for the whole period. 11 Some previous studies agree on the supply constrained growth, such as Thirlwall (1979;1982) for the period 1953-1976, McCombie (1985) for 1973-1980, Pattichis (2001) for 1960-1997, and more recently, Daveri and Jona-Lasinio (2005) from 1970 to 2004, as well as Bagnai (2008) for the period 1960-2006. 12 The definition of potential growth is different than that implying full capacity utilization of factors of production. In this paper, by potential growth we mean the growth achieved without incurring in balanceof-payments deficits.…”

Causes of the decline of economic growth in Italy with special reference to the post-euro period: a balance-of-payments approach

“…8 Some previous studies obtained the same result for Italy, for instance Thirlwall (1979;1982) for the period 1953-1976, McCombie (1985) for 1973-1980, Pattichis (2001) for 1960-1997, and Bagnai (2008) for 1960-2006 The definition of potential growth is different than that implying full capacity utilization of factors of production. In this text we mean the growth achieved without creating balance-of-payments deficits.…”