An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt

Eman Elish

doi:doi:10.11648/j.ijber.20180706.14

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An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt

Eman Elish

Published in International Journal of Business and Economics Research (Volume 7, Issue 6)

Received: 27 October 2018 Accepted: 15 November 2018 Published: 20 December 2018

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Abstract

The Balance of Payment constrained growth model was first introduced by Thirlwall in 1979, see [1-2]. According to him a country’s growth rate cannot surpass the rate consistent with its balance of payment equilibrium unless it can finance its endlessly growing current account deficit, which is deemed impossible. In addition, this country’s actual growth rate should be equal to its potential growth rate calculated based on its income elasticity of demand for exports and imports in the long run. Based on these assumptions, this paper examines the Thirlwall Balance of Payment (BOP) constraint growth model in the case of Egypt for the period of 1980 to 2016 using the bounds testing Auto Regressive Distributed Lag (ARDL) model. The model suggests the validity of Thirlwall’s assumption of a long run relation between imports, gross domestic product (GDP) and relative prices having a negligible effect. The actual growth rate was found to be equal to the calculated potential growth rate given the BOP constraint assumption. The empirical results support the historical development of the Egyptian BOP analysis which shows how the external balance was and remains a major factor affecting Egypt’s growth rate. Policy decisions aiming to achieve the calculated potential growth in Egypt should focus on sustaining a balanced current account, through promoting exports and external financial flows.

Published in	International Journal of Business and Economics Research (Volume 7, Issue 6)
DOI	10.11648/j.ijber.20180706.14
Page(s)	203-211
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2018. Published by Science Publishing Group

Keywords

Thirlwall’s Law, Balance of Payments, Economic Growth, Auto Regressive Distributed Lag Model (ARDL)

References

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Eman Elish. (2018). An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt. International Journal of Business and Economics Research, 7(6), 203-211. https://doi.org/10.11648/j.ijber.20180706.14

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Eman Elish. An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt. Int. J. Bus. Econ. Res. 2018, 7(6), 203-211. doi: 10.11648/j.ijber.20180706.14

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AMA Style

Eman Elish. An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt. Int J Bus Econ Res. 2018;7(6):203-211. doi: 10.11648/j.ijber.20180706.14

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@article{10.11648/j.ijber.20180706.14,
  author = {Eman Elish},
  title = {An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt},
  journal = {International Journal of Business and Economics Research},
  volume = {7},
  number = {6},
  pages = {203-211},
  doi = {10.11648/j.ijber.20180706.14},
  url = {https://doi.org/10.11648/j.ijber.20180706.14},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20180706.14},
  abstract = {The Balance of Payment constrained growth model was first introduced by Thirlwall in 1979, see [1-2]. According to him a country’s growth rate cannot surpass the rate consistent with its balance of payment equilibrium unless it can finance its endlessly growing current account deficit, which is deemed impossible. In addition, this country’s actual growth rate should be equal to its potential growth rate calculated based on its income elasticity of demand for exports and imports in the long run. Based on these assumptions, this paper examines the Thirlwall Balance of Payment (BOP) constraint growth model in the case of Egypt for the period of 1980 to 2016 using the bounds testing Auto Regressive Distributed Lag (ARDL) model. The model suggests the validity of Thirlwall’s assumption of a long run relation between imports, gross domestic product (GDP) and relative prices having a negligible effect. The actual growth rate was found to be equal to the calculated potential growth rate given the BOP constraint assumption. The empirical results support the historical development of the Egyptian BOP analysis which shows how the external balance was and remains a major factor affecting Egypt’s growth rate. Policy decisions aiming to achieve the calculated potential growth in Egypt should focus on sustaining a balanced current account, through promoting exports and external financial flows.},
 year = {2018}
}

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TY  - JOUR
T1  - An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt
AU  - Eman Elish
Y1  - 2018/12/20
PY  - 2018
N1  - https://doi.org/10.11648/j.ijber.20180706.14
DO  - 10.11648/j.ijber.20180706.14
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 203
EP  - 211
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20180706.14
AB  - The Balance of Payment constrained growth model was first introduced by Thirlwall in 1979, see [1-2]. According to him a country’s growth rate cannot surpass the rate consistent with its balance of payment equilibrium unless it can finance its endlessly growing current account deficit, which is deemed impossible. In addition, this country’s actual growth rate should be equal to its potential growth rate calculated based on its income elasticity of demand for exports and imports in the long run. Based on these assumptions, this paper examines the Thirlwall Balance of Payment (BOP) constraint growth model in the case of Egypt for the period of 1980 to 2016 using the bounds testing Auto Regressive Distributed Lag (ARDL) model. The model suggests the validity of Thirlwall’s assumption of a long run relation between imports, gross domestic product (GDP) and relative prices having a negligible effect. The actual growth rate was found to be equal to the calculated potential growth rate given the BOP constraint assumption. The empirical results support the historical development of the Egyptian BOP analysis which shows how the external balance was and remains a major factor affecting Egypt’s growth rate. Policy decisions aiming to achieve the calculated potential growth in Egypt should focus on sustaining a balanced current account, through promoting exports and external financial flows.
VL  - 7
IS  - 6
ER  -

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Author Information

Eman Elish

Department of Economics, The British University in Egypt, Cairo, Egypt

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APA Style

Eman Elish. (2018). An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt. International Journal of Business and Economics Research, 7(6), 203-211. https://doi.org/10.11648/j.ijber.20180706.14

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ACS Style

Eman Elish. An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt. Int. J. Bus. Econ. Res. 2018, 7(6), 203-211. doi: 10.11648/j.ijber.20180706.14

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AMA Style

Eman Elish. An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt. Int J Bus Econ Res. 2018;7(6):203-211. doi: 10.11648/j.ijber.20180706.14

Copy | Download

@article{10.11648/j.ijber.20180706.14,
  author = {Eman Elish},
  title = {An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt},
  journal = {International Journal of Business and Economics Research},
  volume = {7},
  number = {6},
  pages = {203-211},
  doi = {10.11648/j.ijber.20180706.14},
  url = {https://doi.org/10.11648/j.ijber.20180706.14},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20180706.14},
  abstract = {The Balance of Payment constrained growth model was first introduced by Thirlwall in 1979, see [1-2]. According to him a country’s growth rate cannot surpass the rate consistent with its balance of payment equilibrium unless it can finance its endlessly growing current account deficit, which is deemed impossible. In addition, this country’s actual growth rate should be equal to its potential growth rate calculated based on its income elasticity of demand for exports and imports in the long run. Based on these assumptions, this paper examines the Thirlwall Balance of Payment (BOP) constraint growth model in the case of Egypt for the period of 1980 to 2016 using the bounds testing Auto Regressive Distributed Lag (ARDL) model. The model suggests the validity of Thirlwall’s assumption of a long run relation between imports, gross domestic product (GDP) and relative prices having a negligible effect. The actual growth rate was found to be equal to the calculated potential growth rate given the BOP constraint assumption. The empirical results support the historical development of the Egyptian BOP analysis which shows how the external balance was and remains a major factor affecting Egypt’s growth rate. Policy decisions aiming to achieve the calculated potential growth in Egypt should focus on sustaining a balanced current account, through promoting exports and external financial flows.},
 year = {2018}
}

Copy | Download

TY  - JOUR
T1  - An Examination of the Empirical Validity of the Thirlwall ‘Law’: The Case of Egypt
AU  - Eman Elish
Y1  - 2018/12/20
PY  - 2018
N1  - https://doi.org/10.11648/j.ijber.20180706.14
DO  - 10.11648/j.ijber.20180706.14
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 203
EP  - 211
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20180706.14
AB  - The Balance of Payment constrained growth model was first introduced by Thirlwall in 1979, see [1-2]. According to him a country’s growth rate cannot surpass the rate consistent with its balance of payment equilibrium unless it can finance its endlessly growing current account deficit, which is deemed impossible. In addition, this country’s actual growth rate should be equal to its potential growth rate calculated based on its income elasticity of demand for exports and imports in the long run. Based on these assumptions, this paper examines the Thirlwall Balance of Payment (BOP) constraint growth model in the case of Egypt for the period of 1980 to 2016 using the bounds testing Auto Regressive Distributed Lag (ARDL) model. The model suggests the validity of Thirlwall’s assumption of a long run relation between imports, gross domestic product (GDP) and relative prices having a negligible effect. The actual growth rate was found to be equal to the calculated potential growth rate given the BOP constraint assumption. The empirical results support the historical development of the Egyptian BOP analysis which shows how the external balance was and remains a major factor affecting Egypt’s growth rate. Policy decisions aiming to achieve the calculated potential growth in Egypt should focus on sustaining a balanced current account, through promoting exports and external financial flows.
VL  - 7
IS  - 6
ER  -

Copy | Download