Thirlwall's law is not a tautology, but some empirical tests of it nearly are

Abstract

This article examines the charge that Thirlwall's law is a theoretical tautology. It shows that a certain approach to empirical testing of that law can sometimes – under conditions analysed here – result in econometric estimates that reflect an approximate identity or ‘near-tautology’. Nevertheless, other methods of empirically testing the law are not subject to the near-tautology critique, and hence the theory itself is not a tautology. Econometric estimates for the US and Mexico reveal that the near-tautology critique applies to data for the former but not the latter; the difference in these results is explained by exactly the reasons discussed here. The article offers an alternative interpretation of Thirlwall's law as implying a benchmark for analysing whether national income, rather than relative prices, is the main adjusting factor in response to current-account imbalances in the long run.

New advances and controversies in the framework of balance‐of‐payments‐constrained growth

“…Given this focus, the present survey will not cover several areas that have featured prominently in past debates and discussions, or which have been covered extensively elsewhere. For example, this paper will not discuss the old controversy about whether some standard empirical tests of Thirlwall's law reflect a near‐tautology (for recent iterations of this debate, see Blecker, 2016, 2021; Clavijo & Ros, 2015; McCombie, 2011, 2019; Pérez Caldentey, 2015; Razmi, 2016). This paper does not address models incorporating international capital flows and debt sustainability (Barbosa‐Filho, 2001; Bhering et al., 2019; Blecker, 2013; Garcimartin et al., 2016; McCombie & Thirlwall, 1997; Moreno‐Brid, 1998–99, 2003; Soukiazis et al., 2012, 2014; Thirlwall & Hussain, 1982)—a literature that has grown so large that it could require a separate survey.…”

Green Growth and the Balance‐of‐payments Constraint

“…Thus, the real quantities of exports, energy imports and non‐energy imports in period t in growth rates, x t , m e,t and m ne,t , respectively, are given by: $$$$\begin{equation}{x}_t = \ \varepsilon {z}_t + \eta {\mathrm{(}}{p}_{x,t} - {p}_{US,t}{\mathrm{)}}\end{equation}$$$$ $$$$\begin{equation}{m}_{e,t} = {\pi }_e\ {y}_t + {\phi }_e{\mathrm{(}}{p}_{me,t} - {p}_t{\mathrm{)}}\end{equation}$$$$ $$$$\begin{equation}{m}_{ne,t} = {\pi }_{ne}\ {y}_t + {\phi }_{ne}{\mathrm{(}}{p}_{mne,t} - {p}_t{\mathrm{)}}\end{equation}$$$$where z t is growth in world output, y t is output growth of the respective country, p t , p US,t , p x,t , p me,t , and p mne,t are the rates of change of the domestic price level, the US price level as a proxy for the world price level, and the price levels of exports, energy imports and non‐energy imports, respectively. In line with many empirical studies on balance‐of‐payments constrained growth (see, for example, Blecker, 2021: 181), prices of actually traded goods are expressed in relation to the price level of the respective markets where goods are sold and thereby account for prices of traded goods that are predominantly exogenous, particularly to small open economies (see also Razmi, 2016: 1592–96). This is a more specific measure of relative prices than the real exchange rate in the original model in Thirlwall (1979).…”

“…Under these simplifying assumptions, only the income effects are left such that the model is determined by how much exports and imports react to foreign and domestic growth rates, respectively. This leads us to the main argument of what has come to be called ‘Thirlwall's Law’ in the post‐Keynesian tradition, which states that adjustment of the actual economic growth rate towards the balance‐of‐payments constrained rate takes place via income rather than the neoclassical assumption whereby price adjustments automatically rebalance trade (Blecker, 2016: 279; 2021: 179; McCombie and Thirlwall, 2004: 7, 11). Whether relative prices (be it their level or their rate of change) still have some relevance for the balance‐of‐payments constraint is part of an ongoing debate on theoretical as well as empirical grounds (e.g.…”

Infraestrutura e elasticidades de comércio exterior: evidências empíricas para China

“…De fato, esse parece o caso da economia chinesa, Figura 6. Logo, considerando a questão da possível tautologia dos testes empíricos, utilizamos como referência testes mais promissores na literatura recente (conforme indicado em Blecker, 2021). Portanto, dada essa ponderação, é possível afirmar que esses resultados dão indícios de que a hipótese de que o desempenho do crescimento de longo prazo da China refletir proximamente a dinâmica de sua taxa de crescimento BoPC seja confirmada.…”