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.