Economic Growth in an Open Developing Economy
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Economic Growth in an Open Developing Economy

The Role of Structure and Demand

A. P. Thirlwall

This concise yet insightful sequel to the highly acclaimed The Nature of Economic Growth provides a comprehensive critique of both old and new growth theory, highlighting the importance of economic growth for reducing poverty.
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Chapter 5: Balance of payments constrained growth

The Role of Structure and Demand

A. P. Thirlwall


It has been a central feature of most of my own work on economic growth (see, for example, McCombie and Thirlwall, 1994) to try to give demand a central role in growth theory, and to argue that for most countries, rich and poor, demand constraints operate long before supply constraints bite, and that to understand growth rate differences between countries over the long run, the analysis of demand constraints is of central importance. In an open economy, the major constraint on demand, and therefore growth performance, is likely to be its balance of payments or foreign exchange position. At a theoretical level, it can be stated as a fundamental proposition that no country can grow faster than that rate consistent with balance of payments equilibrium on current account unless it can finance ever-growing deficits which, in general, it cannot.

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