This paper assesses the Thirwall's balance of payment(BOP) constrained model by applying it on the Nigerian economy and employing cointegration method to observe the relationship between economic growth and current account balance equilibrium. While extensive research study on economic growth concentrate on the neoclassical supply-oriented approach based on the production function and full employment, Harrod(1939) emphasized that demand generated growth determine long run economic growth and Thirwall developed a Keynesian perspective of the determinants of growth embedded on a dynamic version of the Harrod's foreign trade multiplier. Thirwall pinpoints the incapability of economic agents to increase aggregate demand indefinitely in open economies as justification for income growth differences across nations.
The balance of payment constrained growth model states that a country's economic growth rate is constrained by the desire to generate foreign exchange and reiterate the function of demand as the motivation for domestic growth. This arises because growth in export and investment growth in import substitution are the only aspect of aggregate demand that can increase GDP growth and reduce foreign constraints. This implies that growth rate is constrained by the balance of payment as the economy cannot grow faster than what is consistent with the balance of payment equilibrium. The principle of this Keynesian demand side growth theory is that export capability and import attitude establish long run economic growth. Income derived from external trade constitute the principal medium to finance growing import due to a rise in domestic activities. This model differ from the supply induced growth models which evaluate economic growth by using factor inputs such as savings, human and physical capital, population growth and initial per capital GDP on economic growth. Reservations about the traditional growth models stem from the fact that the factor inputs have inconclusive roles in the growth process in developing countries. Also a lot of the neoclassical assumptions have been observed to be unapplicable in developing or transition economies.
The balance of payment constrained model infer that economic growth are stimulated by demand factors and the main constraint on demand is the balance of payment.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- The Balance of Payments Constrained Growth model
- Thirwall's balance of payment constrained growth model
- Empirical Analysis and Findings
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
The main objective of this paper is to assess the validity of the Thirwall's balance of payment (BOP) constrained growth model by applying it to the Nigerian economy. The study investigates the relationship between economic growth and current account balance equilibrium using cointegration methods.
- Balance of Payments Constrained Growth Model
- Impact of External Factors on Economic Growth
- Nigerian Economic Growth and Development
- Cointegration Analysis and Empirical Findings
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the paper's objective, which is to examine the relevance of Thirwall's BOP constrained model in explaining Nigeria's economic growth. It provides a background on the theoretical framework, contrasting the neoclassical supply-side approach with the Keynesian demand-driven perspective.
- The Balance of Payments Constrained Growth model: This chapter delves into the theoretical underpinnings of the Thirwall's model, outlining the core principles and equations. It explains the role of export capability, import attitude, and relative price changes in determining long-run economic growth.
- Empirical Analysis and Findings: This chapter presents the empirical analysis conducted using data from 1960 to 2012. It discusses the cointegration method employed to determine the long-run relationship between economic growth and exports. The chapter also mentions the use of an error correction technique to confirm the validity of the model and analyze the direction of causality.
Schlüsselwörter (Keywords)
The paper focuses on the relationship between economic growth and the balance of payments in Nigeria. Key themes include the Thirwall's balance of payments constrained growth model, cointegration analysis, export-led growth, import substitution industrialization, and the influence of external factors on economic development.
- Quote paper
- Emmanuel Igbinoba (Author), 2014, Balance of Payments Constrained Economic Growth in Nigeria, Munich, GRIN Verlag, https://www.grin.com/document/299168
