Why Thirlwall's law is not a tautology: more on the debate over the law

Abstract

This paper reconsiders the argument first debated in the 1980s and revisited by Blecker (2016) and Razmi (2016), inter alios, that Thirlwall's law is nothing but a near-identity. It is shown theoretically and by simulation analysis that this proposition is erroneous. It is also demonstrated that Razmi's (2016) specification of the balance-of-payments-constrained growth model is problematical. The paper concludes by assessing the effectiveness of the rate of change of relative prices for export and import growth. Recent evidence provides further support for the importance of non-price competitiveness in international trade and, hence, for Thirlwall's law.

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

“…Progress in economic analysis (heterodox, Post-Keynesian or otherwise) requires that models and theories are open to rigorous debateand such debate can only be fruitful if criticisms accurately reflect the views of those being criticized. McCombie (2019) and Thirlwall (2019) mischaracterized my arguments in Blecker (2016) in at least three respects. First, I did not say that Thirlwall's law or the BPCG model was a theoretical tautology; I only discussed the likelihood that some empirical tests of that law could be testing a near-tautology under certain conditions.…”

“…These more powerful tests are found in the (relatively fewer) studies that have more directly tested what Pérez [Caldentey, 2015] calls the essence of the law: whether BP equilibrium is achieved through adjustments in national incomes rather than relative prices. (Blecker 2016, p. 279, emphasis added) Neither McCombie (2019) nor Thirlwall (2019) cites these passages, which clearly show that I did not advocate the views they incorrectly attribute to me.…”

“…9 In what follows, I will try to make the two steps 9. Razmi essentially substitutes the equivalent of equations ( 7) and ( 8) below into the equivalent of (1) and (2), while simultaneously imposing the assumption that g Q ¼ 0. that are implicit in Razmi's (2016) analysis more explicit, while using McCombie's (2019) distinction between the 'estimated' and 'calculated' elasticities to help clarify the issues at stake. I will present the argument in terms of the strong version of Thirlwall's law in equation ( 2), but the same logic applies to the weak version in equation (1).…”

“…Various alternatives to the original Thirlwall framework have been proposed, all of which are also testaments to its importance and influence. In the same spirit, I suppose I should be grateful that McCombie (2019) and Thirlwall (2019) have responded, albeit rather negatively, to some points I made in my survey of debates about the BPCG model in Blecker (2016). 1 However, I cannot take credit for (and indeed, I did not state) what McCombie refers to as 'Blecker's argument'.…”

“…I have published numerous applications and/or extensions of this modelling framework, including Blecker (1992;2013), Blecker and Ibarra (2013), and Ibarra and Blecker (2016). Blecker (1998) was included in a volume edited by McCombie and Thirlwall (2004), but except for my 2016 survey article, none of my more recent papers utilizing this approach is cited by McCombie (2019) or Thirlwall (2019). Furthermore, I have taught the BPCG model (very favourably) in my graduate courses at American University for several decades, and I have also lectured on it (quite sympathetically) at numerous Post-Keynesian graduate summer schools (most recently in 2019 in Berlin).…”