Balance of Payment Constrained Growth in Tow Developing and Developed Oil-Exporting Economies (Case Study: Iran and Norway)

In this study, we aim to compare results of the basic and extensive forms of the Thirlwall model (balance of payment constrained growth model) for two economies including Iran and Norway. In this model, demand variables i. e. export and import determine the limit of economic growth in the long run. The balance of payment (deficit) can be a factor as a constraint on the rate of growth of output in the long run, since it puts a limit on the demand growth. Given the key role of oil exports and foreign-exchange reserves in the economics of oil countries, it is useful compare results of this model in this country. To do so, the central bank reserves, as an effective factor in the balance of payments of oil producing countries were added to the import function. Additionally, the price and income elasticities of demand for imports and exports and the co-integration were investigated by using the ARDL model and Pesaran and Shin bond test. Then, we calculated the constrained growth in various forms for ten-year overlapping periods from 1960 to 2016 and finally tested the validity of the Thirlwall law. The results indicate that Thirlwall law is not confirmed for Iran; however, it’s confirmed for Norway. Therefore, the balance of payments in Iran does not restrict economic growth. The lower rate of real growth compared to constrained growth of payments can be because of factors such as the lower rate of capital inflow growth in comparison with the growth rate of export volumes as well as the positive effect of relative prices on the constrained growth of payments. These results are completely reversed for Norway. Results showed that the balance of payments is not a limiting factor for Iran's economic growth confirming the fact that improving economic growth in the long run depends on improving the supply side.