Levels of Economic Development and Harrod foreign trade

Abstract

Estimates of export and import demand functions for ninety countries using Stock and Watson (1993) Dynamic OLS are presented. These estimates are then used to examine the relationship between levels of economic development and Harrod foreign trade multiplier. We show that there is an inverted U relations, as predicted by Thirlwall (1997), contrary to Bairam (1997, 1993). Absence of inverse relation between levels of economic development and Harrod foreign trade multiplier imply that Thirlwall's law does not imply convergence.Thirlwall Law, Trade Elasticities, Dynamic Harrod Multiplier