Balance of payments constrained growth - a rejoinder to Professor Thirlwall

Professor Thirlwall has argued that the growth rate of a country is constrained by the requirement that the external current account must broadly balance. He maintains that a country's growth can be analysed using a dynamic Harrod trade multiplier, and that a country's long-run growth rate (y) will approximate to the ratio of the rate of growth of exports (X) to the income elasticity of demand for imports (A): In a recent article in this journal (McGregor and Swales, 1985), doubts were expressed about the theoretical and empirical grounds on which Thirlwall makes these claims. In his reply, Thirlwall argues that such doubts are unfounded. He clarifies his theory on a number of points. He argues that his theory was subjected to inappropriate empirical tests. And whilst accepting that Equation 1 can be derived from a strict neoclassical model, he invites the reader to choose between the plausibility of the neoclassical story, as against the Keynesian alternative.