I hold an MSc in Economics and a BA in Economics and Library and Information Studies. I am a Development and Political Economist with a special interest in the development policies of both developed and emerging economies. My background includes providing well-reasoned consultancy services on public expenditure, managing risk and insurance policies in a central banking environment and research on international and infrastructure development among others. My specialist areas are: International Development, Political Economy of emerging economies, Macroeconomic, fiscal and monetary policies of developed and emerging economies.
The ultimate constraint on growth in an open developing country is the balance of payments because it sets the limit to the growth of demand to which supply can adapt – a discussion paper.
This paper draws on Thirlwall’s Law which asserts that if long term balance of payments equilibrium on current accounts is a requirement and the real exchange rates stay relatively constant, then the long term growth of an economy can be approximated by the ratio of the growth of exports to the income elasticity of demand for imports (Thirlwall, 1979). On this premise, a discussion is carried out mindful of the neo-classical growth theories which are closed economy models with no demand constraints. Several relevant theoretical, empirical and policy implications are then drawn from this view of balance of payments constrained growth.
Keywords: Economy, external constraints, balance of payments, trade, developing countries, constrained growth, export, import, equilibrium, growth rate, Thirlwall’s law, elasticity, growth rate, empirical