The relevance of Thirlwall’s growth law in the Zambian economy

Abstract

AbstractThis paper uses a blended methodology—conventional tests of ‘Thirlwall's law’ combined with an in‐depth growth narrative approach and unit root tests—to identify the dominant balance‐of‐payments adjustment mechanism in the Zambian economy over the period 1956–2017. Consistent with Thirlwall's growth law, the main results identify income changes as the dominant balance‐of‐payments adjustment mechanism, rather than relative price changes. The three‐regime export demand function further reflects the vulnerability of the Zambian economy to unexpected busts in the world copper market, and highlights the need for effective industrial policies to create a more diversified economy into higher value‐added manufactures. The analysis also demonstrates that the results are robust to some of the main criticisms that have been levelled against Thirlwall's original growth law.