A. P. Thirlwall

The Balance of Payments Constraint as an Explanation of International Growth Rate Differences

The paper shows that if long-run balance of payments equilibrium on current account is a requirement then a countrys long run growth rate can be approximated by the ratio of the growth of exports to the income elasticity of demand for imports. The model fits well the experience of eighteen OECD countries. It is output, not relative prices, that adjusts the balance of payments, contrary to the neoclassical orthodoxy. Growth can be demand constained by the balance of payments.

A Model of Regional Growth Rate Differences on Kaldorian Lines

Professor Kaldor has been a long standing critic of the application of neo-classical modes of thought to the analysis of economic growth and development. In recent years, in particular, he has followed the line of Myrdal [1] in attacking the predictions of neo-classical theory that regional (national) growth rate differences will tend to narrow with trade and the free mobility of the factors of production. The essence of the argument is that once a region gains a growth advantage it will tend to sustain that advantage through the process of increasing returns that growth itself induces—the so-called Verdoorn effect [2]. The fullest statement of Kaldor’s views at the regional level is contained in a lecture to the Scottish Economic Society published in 1970 [3]. Unfortunately the model he presents is purely verbal and lacks the rigour and precision that one normally associates with Kaldor. The purpose here is to attempt to formalize the model in order to clarify its structure,1 and to consider such questions as: the role of the Verdoorn effect in contributing to regional growth rate differences; whether regional growth rate differences will tend to narrow or diverge through time; and how policies of regional ‘devaluation’ can raise a region’s growth rate.2

Regional problems are “balance-of-payments” problems

Thirlwall A. P. (1980) Regional problems are balance-of-payments problems, Reg. Studies 14, 419–425. A demand-oriented model of regional growth and unemployment is developed in which it is argued that regional problems of slow growth and high unemployment are, in essence, balance-of-payments problems stemming from a weak trading sector, working through the Harrod trade multiplier. The model contrasts with the supply orientated models of neoclassical theory with their stress on factor supplies and productivity growth, apparently exogenously given and independent of demand. The model is in the Keynesian spirit, with supply adjusting to demand through factor mobility and with exports as the major component of autonomous regional demand.

Trends, cycles and asymmetries in the terms of trade of primary commodities from developed and less developed countries

Abstract The paper examines the Prebisch hypothesis that primary product prices relative to the price of manufacturers fall during cyclical downturns by more than they rise during cyclical upturns and that this is an independent explanation of the secular tendency of the net barter terms of trade to move against primary commodities. An important distinction is made between primary products exported by less developed countries and those exported by developed countries. The greater cyclicality of primary product prices, and the long-run deterioration in their terms of trade since 1954 are confirmed, but there is little support for the Prebisch thesis that primary product prices relative to manufacturers are move sensitive on the downswing than the upswing.

Trade liberalization, the income elasticity of demand for imports, and growth in Latin America

This paper applies the balance-of-payments-constrained growth model to 17 countries of Latin America over the period 1977-2002. The crucial parameter to estimate is the income elasticity of demand for imports, which is done for Latin America as a whole and for individual countries. As well as estimating over the whole period, the technique of rolling regressions is also used to test whether a trend increase can be discerned as a result of trade liberalization. A trend increase is found for Latin America as a whole and for some individual countries, and the balance-of-payments equilibrium growth rate is a good predictor of growth performance in nine of the 17 countries. There is no evidence that the balance-of-payments equilibrium growth rate has increased in Latin America as a result of trade liberalization.

Explaining differences in the domestic savings ratio across countries: A panel data study

This article seeks to analyse the major determinants of differences in the domestic savings ratio between countries using panel data for 62 countries over the period 1967—95. A basic distinction is made between the determinants of the capacity to save and the willingness to save. The capacity to save depends primarily on the level of per capita income (but non-linearly) and the growth of income (the life-cycle hypothesis), and the empirics strongly support these hypotheses. The willingness to save is assumed to depend on financial variables such as the rate of interest, the level of financial deepening and inflation. We find no support for a positive interest rate effect, but strong support for the level of financial deepening measured by the ratio of quasi-liquid liabilities to GDP. Inflation exerts a mild positive effect on saving but soon turns negative. Total saving may also depend on tax effort, but a surprisingly strong negative relation is found between the ratio of tax revenue to GDP and the domestic savings ratio.

Interest rates, saving, investment and growth in mexico 1960–90: Tests of the financial liberalisation hypothesis

The theory of financial liberalisation argues that rising real interest rates induces more saving and investment and therefore acts as a positive stimulus to economic growth. This hypothesis is tested for Mexico over the period 1960–90, making the important distinction between financial saving and total saving. Financial saving is found to be positively related to real interest rates partly through capital flows and partly through domestic asset substitution, but total saving is invariant with respect to real interest rates. Investment is positively related to the supply of credit from the banking system, but the net effect of interest rates on investment is negative. Furthermore, taking McKinnons ‘virtuous circle’ model of economic growth shows no favourable effects of interest rates on economic growth. It is concluded that any favourable effect of financial liberalisation and higher real interest rates on economic growth must come through raising the productivity of investment.

Selected Economic Writings.

The twenty-nine essays in this volume deal with three main topics: issues in development economics; mathematical planning techniques and models of economic growth; and the links theoretical discussions and various specific experiences in development. The book closes with a series of tributes by Chakravarty to his contemporaries, including Joan Robinson, John Hicks, Gunnar Myrdal, Rosenstein-Rodan and P.C. Mahalanobis.

The least developed countries report, 2006: Developing productive capacities

There are 50 countries in the world classified as Least Developed (hereafter the LDCs) defined according to three general criteria: (i) a per capita income less than

Is the natural rate of growth exogenous

750 per annum; (ii) low levels of human capital measured by malnutrition, child mortality, educational enrolment and illiteracy; and (iii) economic vulnerability. In 2001, a new Programme of Action (POA) for the LDCs for the years 2001–10 was agreed at the Third United Nations Conference on the Least Developed Countries (UNLDC III). The POA is intended as ‘a framework for a strong global partnership to accelerate sustained economic growth and sustainable development in LDCs, to end marginalisation by eradicating poverty, inequality and deprivation in these countries, and to enable them to integrate beneficially into the global economy’ (p. 27). To this end, action was called for to promote good governance, to improve productive capacities, including human and institutional capacity, to enhance the role of trade, to mobilise financial resources, and to reduce the vulnerability of countries to internal and external shocks. Various ambitious targets were set, not dissimilar to some of the Millennium Development Goals, but broader including investment and growth targets, and objectives relating to trade and infrastructure provision. Since 2000, every two years, the LDCs Division of UNCTAD has produced a report on a special theme related to the LDCs, prepared and written by a small team led by Charles Gore. In 2000, the topic was ‘Aid, private capital flows and external