The balance of payments-constrained growth rate and the natural rate of growth: New empirical evidence
Cambridge Journal of Economics, ISSN: 1464-3545, Vol: 38, Issue: 4, Page: 817-838
2014
- 37Citations
- 30Captures
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Article Description
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 autoregressive distributed lag modelling, mean-group and pooled mean-group estimation methods, we use annual data over the 1960-2010 period 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 (y) must equal the natural (or potential) rate of growth (y) 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 y and y. The results indicate the existence of unidirectional long-run causality from y to y, thus reinforcing the view, embodied in the law that long-run growth is determined by demand and constrained by the BOP. © The Author 2014. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.
Bibliographic Details
http://www.scopus.com/inward/record.url?partnerID=HzOxMe3b&scp=84903603776&origin=inward; http://dx.doi.org/10.1093/cje/bet058; https://academic.oup.com/cje/article-lookup/doi/10.1093/cje/bet058; http://academic.oup.com/cje/article-pdf/38/4/817/4823153/bet058.pdf; https://dx.doi.org/10.1093/cje/bet058; https://academic.oup.com/cje/article-abstract/38/4/817/1733069?redirectedFrom=fulltext
Oxford University Press (OUP)
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