1 Structural Change, Balance-of-Payments Constraint and Economic Growth: Evidence from the Multi-Sectoral Thirlwall’s Law

Abstract: This paper contributes to the empirical literature on balance-of-payments-constrained growth by investigating how structural change, identified with change in the sectoral composition of exports and/or imports, affects the extent of the external constraint. This is done by testing both the original and a multi-sectoral version of Thirlwall’s Law for a sample of Latin American and Asian countries. While the original, aggregate Thirlwall’s Law is found to hold for all sample countries but South Korea, the Multi-Sectoral Thirlwall’s Law is found to hold for all of them. As the sectoral composition of exports and imports is therefore found to matter for growth, we then briefly analyze the evolution of each country’s weighted trade income elasticities