Estimates of industrial country export and import demand functions: implications for 'Thirlwall's Law'

The paper presents estimates of export and import demand functions for fifteen industrial countries. To allow for common shocks use is made of the Seemingly Unrelated Regression Estimator (SURE). These estimates are then used to construct predictions of the growth rate consistent with balance of payments equilibrium along the lines of the Thirlwall hypothesis. Regressions of actual growth rates on the predicted values indicate that the hypothesis performs better when the observations are weighted by relative GDP. It is concluded that 'Thirlwall's Law' is more useful for understanding the overall growth rate of the aggregate of industrial countries than cross-country growth performance.