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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 20 de 2015


Applying Thirlwall's Law to the Portuguese economy: a sectoral analysis

Jeanete Dias

Universidade de Coimbra

Micaela Antunes
Universidade de Coimbra/GEMF


International trade is definitely one of the most relevant factors when considering the economic expansion of a small country like Portugal and as such, this work analyzes the impact that the Balance of Payments can have on economic growth. For that, we apply Thirlwall's Law. In addition, following the international economic and financial crisis of 2008, that among others, led to a fall in Private Investment and Public and Private Consumption, this work aims at verifying whether international trade can contribute to growth. Moreover, we examine wheter the production structure can influence national growth, by using Thirlwall's Multi-Sectoral Law. Furthermore, the evolution of the main exporting and importing sectors is described for the period 1994-2013 and the import and export demand functions are estimated both at an aggregated and sectoral level, in order to obtain the income elasticities that allow the computation of the Balance-of-Payments equilibrium growth rate. The results show Thirlwall's Law is not as accurate as usual, probably due to the peculiarity of the period of analysis. In addition, the multi-sectoral perspective proves to be a better approximation to the period's effective growth rate.

JEL Classification: E12, F31, F43

Keywords: Economic Growth, Income-elasticities, Thirlwall's Law, Multi-sectoral Thirlwall's Law

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