A 'Generalised' Version of the Balance-of-Payments Growth Model: An application to neighbouring regions

Abstract

This paper applies a 'generalised' version of Thirlwall's balance-of-payments (BOP) constrained growth model by testing for long-run relationships between the output growth rates of OECD countries and two neighbouring regions; South Africa (SA) and the rest of the Southern African Development Community (RSADC). The empirical results find strong support for the 'generalised' BOP growth model, which stresses the mutual interdependence of the world economy where one country's growth rate depends on others'. Although the policy implications are not mutually exclusive, they may be viewed from the individual perspectives of SA and RSADC. SA is only BOP constrained with respect to OECD. The message to SA's policy makers is that faster growth rates may be the result of an improvement in the structural demand features of its exports to OECD. RSADC is only BOP constrained with respect to SA. Growth-promoting policies in SA may have a high and positive impact on the whole SADC region. Policy-makers in RSADC, however, are advised to reduce their dependence on SA by improving the structural demand features of their exports to OECD.