Testing the Demand Oriented Approach to Economic Growth in Iran: An Application of Time-Varying Parameter

Ehsani, Mohammad Ali; Taheri Bazkhaneh, Saleh

Document Type : Quarterly Journal

Authors

¹ Associate Professor of Economics, Mazandaran University, Babolsar, Iran

² Ph.D. Student in Economics, Mazandaran University, Mazandaran, Iran

Abstract

Post Keynesian growth model considers the use of production factors as a function of production and introduces demand as the main determinant of economic growth. Accordingly, Thirlwall (1979) presented a model suggesting that demand is restrained by the balance of payments deficit and turns into substantial limitations to achieve higher economic growth rate owing to balance of payments deficit. This model is known as Thirlwall law or “balance of payments constrained growth model”. In this model the maximum rate of economic growth consistent with the balance-of-payments equilibrium is figured out using income elasticity of import and export. Identifying the barriers to achieving the target growth rate has been turned into one of the most controversial economic issues because of the challenges of low economic growth in Iran. Thus this study is going to provide an answer to the question that, based on Thirlwall law, Whether the balance of payments deems obstacles to the target growth rates of development programs for the Iran’s economy or not? To accomplish this, first the long run cointegration relationship of import and export demand functions was approved by autoregressive distributed lag model (ARDL). Then, regarding the importance of the elasticities of above functions on the results of the study and removing the structural instability of the model coefficients, time–varying parameter (TVP) and Kalman – filter were used to estimate the elasticities. Finally the validity of Thirlwall law was not confirmed during 1984-2013 applying Wald Test. Therefore, it can be claimed that aggregate demand has not restricted the economic growth through the balance of payments. Low income elasticity of import, combination of imports, restrictions on imports and dependence of foreign trade on oil revenues are the most important reasons for the results.

Keywords

20.1001.1.22285954.1397.8.30.8.3

Main Subjects

Economic Growth

References

ابونوری، اسمعیل و فراهتی، محبوبه (1395). "رشد اقتصادی در ایران؛ دیدگاه پساکینزین‌ها". فصلنامه علمی پژوهشی پژوهش‌های رشد و توسعه اقتصادی، دوره 7، شماره 25، 46-33.

حسنوند، سمیه؛ زراءنژاد، منصور و منتظرحجت، امیرحسین (1395). "تحلیل تأثیر نرخ بیکاری بر اقتصاد سایه در کشورهای در حال توسعه منتخب". فصلنامه علمی پژوهشی پژوهش‌های رشد و توسعه اقتصادی، دوره 6، شماره 22، 118-103.

عزیزی، وحید؛ مهرگان، نادر و یاوری، غلامرضا (1393). "آزمونمدلرشدمحدودشدهبهتراز پرداخت‌هادربخش کشاورزیایران". فصلنامه سیاست‌های مالی و اقتصادی، سال دوم، شماره 8، 20–5.

نوفرستی، محمد. (1392). "ریشه واحد و هم‌جمعی در اقتصادسنجی". تهران. نشر رسا. چاپ چهارم.

Alonso, J. A. (1999). “Growth and the External Constraint: Lessons from the Spanish Case”. Applied Economics, 31(2), 245–253.

Aricioglu, E., Ucan, O. & Bahadir, T. S. (2013). “Thirlwall’s Law: The Case of Turkey (1987–2011)”. International Journal of Economics and Finance, 5(9), 59–68.

Atesoglu, H. S. (1993). “Balance-of-Payments-Constrained Growth: Evidence from the United States”. Journal of Post Keynesian Economics, 15(4), 507–514.

Bairam, E. & Georgina, J. D. (1991). “The Harrod Foreign Trade Multiplier and Economic Growth in Asian Countries”. Applied Economics, 23(11), 1719–1724.

Gökçe, A. & Çankal, E. (2013). “Balance-of-Payments Constrained Growth Model for the Turkish Economy”. Economic Modelling, 35, 140–144.

Halicioglua, F. (2012). “Balance-of-Payments-Constrained Growth: the Case of Turkey”. Journal of Post Keynesian Economics, 35(1), 65–78.

Harvey, A. C. (1991). “Forecasting, Structural Time Series Models and the Kalman Filter”. Cambridge, Cambridge University Press.

Hieke, H. (1997). “Balance-of-Payments-Constrained Growth: A Reconsideration of the Evidence for the U.S. Economy”. Journal of Post Keynesian Economics, 19(3), 313–325.

Houthakker, H. S. & Magee, P. S. (1969). “Income and Price Elasticities in World Trade”. The Review of Economics and Statistics, 51(2), 111–125.

Jafari Samimi, A., Baloonejad Nouri, R. & Hosseinzadeh, R. (2011). “Foreign Trade and Economic Growth: Evidence of Thirlwall’s Law in Iran”. Journal of Social and Development Sciences, 2(2), 81–88.

Kvedaras, V. (2005). “Explanation of Economic Growth Differences in the CEE Countries: Importance of the BOP Constraint Baltic”. Baltic Journal of Economics, 5(2), 48–65.

Moreno-Brid, J. C. & Pérez, E. (1999). “Balance of Payments Constrained Growth in Central America: 1950–96”. Journal of Post Keynesian Economics, 22(1), 131–147.

Perraton, J. & Turner, P. (1999). “Estimates of Industrial Country Export and Import Demand Functions: Implications for Thirlwall’s Law”. Applied Economic Letters, 6(11), 723–727.

Perraton, J. (2003). “Balance of Payments Constrained Growth and Developing Countries: An Examination of Thirlwall’s Hypothesis”. International Review of Applied Economics, 17, 1–22.

Razmi, A. (2005). “Balance-of-Payments-Constrained Growth Model: The Case of India”. Journal of Post Keynesian Economics, 27(4), 655-687.

Thirlwall, A. P. (1979). “The Balance of Payments Constraint as an Explanation of International Growth Rate Differences”. Banca Nazionale Del Lavoro Quarterly Review, 128, 44–53.

Thirwall, A. P. & Hussain, M. N. (1982). “The Balance of Payments Constraint, Capital Flows and Growth Rate Differences between Developing Countries”. Oxford Economic Papers, 34, 498–510.

Yongbok, J. (2009). “Balance of Payments Constrained Growth: The Case of China 1979–2002”. International Review of Applied Economics, 23(2), 135–146.

Economic Growth and Development Research

Testing the Demand Oriented Approach to Economic Growth in Iran: An Application of Time-Varying Parameter

References

References

Volume 8, Issue 30 - Serial Number 30
April 2018
Pages 133-145

Testing the Demand Oriented Approach to Economic Growth in Iran: An Application of Time-Varying Parameter

References

References

Volume 8, Issue 30 - Serial Number 30April 2018Pages 133-145

Volume 8, Issue 30 - Serial Number 30
April 2018
Pages 133-145