THE EMPIRICAL APPLICATION OF THIRLWALL’S LAW AND THE ENDOGENEITY OF NATURAL RATE OF GROWTH: EVIDENCE FROM NIGERIA

Back to Page Authors: Yohanna Panshak

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Keywords: balance of payments constraint, relative prices, intermediate imports, natural rate, foreign content in the aggregate demand components

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Abstract: This study employs system estimator as well as autoregressive distributed lag model to examine the validity of Thirlwall’s ‘Law’ which contends that actual growth of domestic income must be compatible with equilibrium growth rate determined by balance of payments (BoP) and is thus explained on the demand side. The study uses an extended version of Thirlwall’s model developed by Soukiazis, Cerqueira and Antunes (2014) for the investigation. The outcome of the study shows that the new version of the model improves significantly explaining growth in Nigeria. In addition, the study and finds a substantial support for the hypothesis that natural rate of growth adjusts towards actual growth of domestic income in the long run.

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