THIRLWALLS LAW AND BALANCE OF PAYMENTS CONSTRAINED GROWTH - MORE ON THE DEBATE

The various criticisms that have been levelled against Thirlwall's Law by McGregor and Swales are examined. It is shown that their arguments are untenable. The relationship between the neoclassical law of one price and Thirlwall's Law is clarified. Thirlwall's Law is not overwhelmingly rejected by the evidence as McGregor and Swales assert. Their suppression of the influence of the price term on the estimates used in the.test proposed by McCombie is inappropriate. Their regression analysis is also mis-specified and a preferable specification provides no support for their conclusions. They repeatedly argue that Thirlwall's model cannot account for changes in market shares and that the estimated income elasticities of demand for exports and imports cannot capture the effects of non-price competition. This was shown to be erroneous by McCombie and the reasons advanced are further elaborated. McGregor and Swales provide another interpretation of the relationship between Thirlwall's Law and the Harrod foreign trade multiplier, but their criticism of McCombie is unwarranted. The methodology of McGregor and Swales seems to be one of 'naive falsificationism'.