Balance of payment constrained growth : the case of selected ASEAN countries

Abstract

This study provides an empirical evidence of the economic performance of the four ASEAN countries: Indonesia, Malaysia, The Philippines and Thailand based on the application of Thirlwall & Hussain law (1979, 1982). In the model developed by Thirlwall and Hussain (1979,1982) the expenditure of a country cannot indefinitely grow faster than income and the economic performance of a country is constrained by its balance of payment position. So it is therefore argued that over the long run countries will grow at a rate consistent with the equilibrium in their balance of payment. The empirical results of this paper indicate that the economic growth of these four countries is constrained by their balance of payment position particularly the constraint on demand since the evidence shows that there is a close association between the income growth predicted by the Thirlwall & Hussain's Balance of Payment Constrained (BPC) growth model to the actual growth during the 1970-1998 period. The empirical findings also supported Thirllwall & Hussain's expectation that their extended version of the BPC model will give a closer prediction of the actual growth than that predicted by the BPC simple ffiodel developed by Thirlwall ( 1979).