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Thirlwall's law: Binding-constraint or centre-of-gravity? A possible Kaleckian solution

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  • Marwil J. Dávila-Fernández
  • Serena Sordi

Abstract

Thirlwall’s law is one of the most powerful empirical regularities among demand-led growth theories. In recent years, the challenges imposed by globalisation have led to a new wave of studies incorporating into this framework topics such as ecological sustainability, the complexity of innovation processes, the role of institutions, the composition of external imbalances, and gender issues. We notice some overlapping between two alternative interpretations: one that sees the law as a binding-constraint and another that adopts a centre-of-gravity perspective. It is argued that they are rather complementary. By means of a simple Keynesian multiplier model compatib with Harrodian instability, we show that assuming a balance-of-payments ceiling to growth gives rise to persistent and bounded fluctuations such that the external constraint works as an asymmetric centre-of-gravity. There is no need to impose a floor to output. The model is compatible with different sources of autonomous demand. Numerical simulations show the robustness of our results with respect to alternative scenarios.

Suggested Citation

  • Marwil J. Dávila-Fernández & Serena Sordi, 2021. "Thirlwall's law: Binding-constraint or centre-of-gravity? A possible Kaleckian solution," Department of Economics University of Siena 853, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:853
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    More about this item

    Keywords

    Dynamic Harrod trade-multiplier; Growth; Open economies; Two-stroke oscillator;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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