The Balance of Payments Constraint and the Post 1973 Slowdown of Economic Growth in the G7 Economies

This paper presents estimates of export and import demand functions for the G7 economies over the period 1956 to 1995 and over two sub-periods 1956-73 and 1974-95. These estimates are used to construct predictions of the equilibrium growth rates for these economies by use of the 'Thirlwall's Law' relationship. The estimates are consistent with observed cross country growth patterns over the whole sample and the post 1973 period but are less convincing in the pre 1973 sub-period. It is argued that the slowdown in economic growth after 1973 can be partly explained by the growing internationalisation of the world economy coupled with a slowdown in the overall growth of world trade.