Thirlwall's Law

Definitions

Economics

  • The empirical regularity observed by Thirlwall (1979) that for many countries the rate of growth of output, gY, is approximated by the rate of growth of exports, gX, divided by the country's elasticity of demand for imports, ?M: gY = gX/?M.
  • Equivalently, letting export growth be driven by foreign income growth, gY*, and the elasticity of (foreign) demand for exports, ?X, this equates the ratio of foreign and domestic growth rates to the ratio of the trade elasticities: gY/gY* = ?X/?M. The latter was dubbed by Krugman (1989) the "45-degree rule."
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