What is the Thirlwall’s law?

The Thirlwall’s Law, a fundamental concept in economics, posits that achieving long-run balance of payments equilibrium hinges on the constancy of the real exchange rate.

According to this principle, if a country aims for such equilibrium, its long-run growth can be estimated by the ratio of export growth to the income elasticity of demand for imports.

In essence, Thirlwall’s Law provides insights into the intricate relationship between a nation’s economic growth, trade dynamics, and the stability of its balance of payments.

This law, articulated by British economist Tony Thirlwall, serves as a valuable tool for economists and policymakers seeking to understand and navigate the complexities of international trade and economic development.

Who Was Tony Thirlwall?

Tony Thirlwall was a British economist and Professor of Applied Economics at the University of Kent.

Thirlwall’s contributions spanned the spectrum of economic disciplines, from regional economics to the intricate analyses of unemployment, inflation, and balance of payments theory.

His expertise in growth and development economics, especially concerning developing countries, showcased a commitment to understanding and addressing global economic disparities.

A prolific author, Thirlwall penned the bestselling textbook “Economics of Development: Theory and Evidence” (Palgrave Macmillan), now in its ninth edition.

Beyond his academic pursuits, he served as the biographer and literary executor of the renowned Cambridge economist Nicholas Kaldor, preserving and extending the legacy of economic thought.

Thirlwall’s Law stands as perhaps his most notable contribution, revealing the intricate connection between a country’s long-run balance of payments equilibrium and the approximation of its national income growth.