2022 (19), №2

Thirlwall’s Law: An Application to Poland

Для цитирования:

Fedoseeva, T. Yu. & Rozmainsky, I. V. (2022). Thirlwall’s Law: An Application to Poland. AlterEconomics, 19(2), 283-305, https://doi.org/10.31063/AlterEconomics/2022.19-2.5.


The present study validates assumptions of Thirlwall’s law and illustrates its implication for Poland. Furthermore, a rarely used “strong” form of Thirlwall’s law is tested. This law reflects the importance of trade balance restrictions on economic growth prospects. This aspect is now very relevant. The research aims to find out whether both forms of Thirlwall’s law are valid in Poland. The assumption that the relative prices do not influence trade performance of Poland does not hold, therefore, influence of terms of trade was considered and the balance of payments (BOP) constrained growth rate was calculated with and without terms of trade effect. For the “strong” form of Thirlwall’s law, the existence of correlation between growth of income of Poland and the rest of the world was tested. The existence of cointegration between rates of growth of export and gross domestic product (GDP) is tested as a main idea of growth model based on export. After verifying that all assumptions of the model hold, Autoregressive Distributed Lag (ARDL) cointegration approach and error correction model are applied to estimate income elasticities. Further, statistical equality of growth rates of predicted and real GDP was tested to validate Thirlwall’s law, and it supports the importance of external imbalances for Polish economy for the period between 1995 and 2018. Both “weak” and “strong” forms of Thirlwall’s law turned to be valid. Further research may focus on testing the validity of assumptions of Thirlwall’s law on data from other countries of Eastern Europe, as well as post-Soviet countries, since there are very few such studies to date.

Tatyana Yu. FEDOSEEVA, independent researcher, JSC “Arcadia Inc.” ,28/2, Bolshoy Sampsonievskiy Prospect, St. Petersburg, 194044, Russian Federation,

Ivan V. ROZMAINSKY,  Cand. Sci. (Econ.), National Research University Higher School of Economics, 3 A, Kantemirovskaya St., St. Petersburg, 194100, Russian Federation, e-mail: irozmain@yandex.ru,   https://orcid.org/0000-0003-1321-2718

Alleyne, D. & Francis, A. A. (2008). Balance of payments-constrained growth in developing countries: a theoretical perspective.  Metroeconomica, 59(2),  189–202. DOI: https://doi.org/10.1111/j.1467–999X.2008.00299.x.

Alonso, J. A. & Garcimartín, C. (1998). A new approach to balance-of-payments constraint: some empirical evidence.  Journal of Post Keynesian Economics, 21(2),  259–282. DOI: https://doi.org/10.1080/01603477.1998.11490193.

Alonso, J. A. (1999). Growth and the external constraint: lessons from the Spanish case.  Applied Economics, 31(2),  245–253. DOI: https://doi.org/10.1080/000368499324471.

Andersen, P. S. (1993). The 45-rule revisited.  Applied Economics, 25(10),  1279–1284. DOI: https://doi.org/10.1080/00036849300000093.

Araujo, R. A. & Lima, G. T. (2007). A structural economic dynamics approach to balance-of-payments-constrained growth.  Cambridge Journal of Economics, 31(5),  755–774. DOI: https://doi.org/10.1093/cje/bem006.

Aricioglu, E., Ucan, O. & Sarac, T. B. (2013). Thirlwall’s Law: The Case of Turkey, 1987–2011.  International Journal of Economics and Finance, 5(9),  59–68. DOI: https://doi.org/10.5539/ijef.v5n9p59.

Bagnai, A., Rieber, A. & Tran, T. A. D. (2016). Sub-Saharan Africa’s growth, South–South trade and the generalised balance-of-payments constraint.  Cambridge Journal of Economics, 40(3),  797–820. DOI: https://doi.org/10.1093/cje/bev020.

Bairam, E. (1997). Levels of economic development and appropriate specification of the Harrod foreign trade multiplier.  Journal of Post Keynesian Economics, 19(3),  337–344. DOI: https://doi.org/10.1080/01603477.1997.11490115.

Cheung, Y. W. & Lai, K. S. (1993). Finite-sample sizes of Johansen’s likelihood ratio tests for cointegration.  Oxford Bulletin of Economics and Statistics, 55(3),  313–328. DOI: https://doi.org/10.1111/j.1468–0084.1993.mp55003003.x.

Felipe, J., McCombie, J. & Naqvi, K. (2010). Is Pakistan’s growth rate balance-of-payments constrained? Policies and implications for development and growth.  Oxford Development Studies, 38(4),  477–496. DOI: https://doi.org/10.1080/13600818.2010.525351.

Gurvich, E. & Prilepsky, I. (2013). How to secure external sustainability of the Russian economy.  Voprosy Economiki, 9,  4–39. DOI: https://doi.org/10.32609/0042–8736–2013–9-4–39.

Houthakker, H. S. & Magee, S. P. (1969). Income and price elasticities in world trade.  The Review of Economics and Statistics, 51(2),  111–125. DOI: https://doi.org/10.2307/1926720.

Ibarra, C. A. & Blecker, R. A. (2016). Structural change, the real exchange rate and the balance of payments in Mexico, 1960–2012.  Cambridge Journal of Economics, 40(2),  507–539. DOI: https://doi.org/10.1093/cje/beu079.

Jeon, Y. (2009). Balance-of-payment constrained growth: the case of China, 1979–2002.  International Review of Applied Economics, 23(2),  135–146. DOI: https://doi.org/10.1080/02692170802700476.

Kripfganz, S. & Schneider, D. (2018).  Response surface regressions for Critical Value Bounds and approximate p-values in equilibrium correction models.  Retrieved from: http:// www.kripfganz.de/research/Kripfganz_Schneider_ec.html (Date of access: 31.08. 2021)

López, G. J. & Cruz, B. A. (2000). “Thirlwall’s law” and beyond: the Latin American experience.  Journal of Post Keynesian Economics, 22(3),  477–495. DOI: https://doi.org/10.1080/01603477.2000.11490253.

McCombie, J. & Thirlwall, A. P. (Eds.) (2004).  Essays on Balance of Payments Constrained Growth: Theory and Evidence.  London: Routledge, 352. DOI: https://doi.org/10.4324/9780203495360.

McCombie, J. S. L. & Thirlwall, A. P. (1994).  Economic Growth and the Balance-of-Payments Constraint.  New York, St. Martin’s Press, 616.

McCombie, J. S. L. (1989). ‘Thirlwall’s Law’ and balance of payments constrained growth — a comment on the debate.  Applied Economics, 21(5),  611–629. DOI: https://doi.org/10.1080/758524894.

McGregor, P. G. & Swales, J. K. (1985). Professor Thirlwall and balance of payments constrained growth.  Applied Economics, 17(1),  17–32. DOI: https://doi.org/10.1080/00036848500000002.

Mironov, V. V. & Konovalova, L. D. (2019). Structural changes and economic growth in the world economy and Russia.  Russian Journal of Economics, 5(1),  1–26. DOI: https://doi.org/10.32609/j.ruje.5.35233.

Moreno-Brid, J. C. (1998). On capital flows and the balance-of-payments-constrained growth model.  Journal of Post Keynesian Economics, 21(2),  283–298. DOI: https://doi.org/10.1080/01603477.1998.11490194.

Nell, K. A. (2003). A ‘Generalised’ version of the balance-of-payments growth model: An application to neighbouring regions.  International Review of Applied Economics, 17(3),  249–267. DOI: https://doi.org/10.1080/0269217032000090478.

Palley, T. I. (2003). Pitfalls in the theory of growth: an application to the balance of payments constrained growth model.  Review of Political Economy, 15(1),  75–84. DOI: https://doi.org/10.1080/09538250308441.

Perraton, J. (2003). Balance of payments constrained growth and developing countries: an examination of Thirlwall’s hypothesis.  International Review of Applied Economics, 17(1),  1–22. DOI: https://doi.org/10.1080/713673169.

Pesaran, M. H., Smith, R. J. & Shin, Y. (2001). Bounds testing approaches to the analysis of level relationships.  Journal of Applied Econometrics, 16(3),  289–326. DOI: https://doi.org/10.1002/jae.616.

Podkaminer, L. (2017). “Thirlwall’s Law” reconsidered.  Empirica, 44(1),  29–57. DOI: https://doi.org/10.1007/s10663–015–9310–6.

Razmi, A. (2016). Correctly analysing the balance-of-payments constraint on growth.  Cambridge Journal of Economics, 40(6),  1581–1608. DOI: https://doi.org/10.1093/cje/bev069.

Sasaki, H. (2008). North-South Ricardian trade and growth under the balance-of-payments constraint.  Journal of Post Keynesian Economics, 31(2),  299–324. DOI: https://doi.org/10.2753/PKE0160–3477310206.

Setterfield, M. (2006). Thirlwall’s Law and Palley’s pitfalls: a reconsideration. In Arestis, P., McCombie, J., Vickerman, R. (Eds.).  Growth and Economic Development: Essays in Honour of A. P. Thirlwall.  Cheltenham: Edward Elgar Publishing, 47–59.

Soukiazis, E. & Antunes, M. (2011). Application of the balance-of-payments-constrained growth model to Portugal, 1965–2008.  Journal of Post Keynesian Economics, 34(2),  353–380. DOI: 10.2753/PKE0160–3477340209.

Thirlwall, A. P. & Hussain, M. N. (1982). The balance of payments constraint, capital flows and growth rate differences between developing countries.  Oxford Economic Papers, 34(3),  498–510. DOI: https://doi.org/10.1093/oxfordjournals.oep.a041565.

Thirlwall, A. P. (1979). The balance of payments constraint as an explanation of the international growth rate differences.  BNL Quarterly Review, 32(128),  45–53.

Thirlwall, A. P. (1997). Reflections on the concept of balance-of-payments–constrained growth.  Journal of Post Keynesian Economics, 19(3),  377–385. DOI: https://doi.org/10.1080/01603477.1997.11490117.

Thirlwall, A. P. (2011). The balance of payments constraint as an explanation of international growth rate differences.  PSL Quarterly Review, 64(259),  429–438.

Tovar-Garcia, E. D. & Carrasco, C. A. (2019). The balance of payments and Russian economic growth.  HSE Economic Journal, 23(4),  524–541. DOI: http://doi.org/10.17323/1813–8691–2019–23–4-524–541.

Trigg, A. B. (2020). Thirlwall’s Law and uneven development under Global Value Chains: a multi-country input–output approach.  Journal of Economic Structures, 9(1),  1–22. DOI: https://doi.org/10.1186/s40008–020–0178–7.

Vera, L. V. (2006). The balance-of-payments-constrained model: a north-south approach.  Journal of Post Keynesian Economics, 29(1),  67–92. DOI: https://doi.org/10.2753/PKE0160–3477290104.