On the evolution of income elasticities of imports and Thirlwall’s Law: A Bayesian analysis for Latin America (1961-2018)^♦

Abstract

This paper analyzes the evolution of income elasticities of imports and verifies the validity original Thirlwall’s Law for eight Latin American countries overs the period 1961-2018. Given the econometric issues inherent to classical time-varying parameter regressions, a Bayesian estimation procedure is implemented in order to provide more robust parameter estimates. A stochastic volatility specification is also included to take into account the potential presence of conditional heteroskedasticity. While some Latin American economies showed a rather stable behavior, the income elasticities of imports for Brazil, Colombia and Mexico presented an upward trend from 1961 to 2018. Regarding the validity of original Thirlwall’s Law, there were evidences of the balance-of-payments (BOP) posing a restriction to the growth performance in all of the eight selected Latin American countries.

Keywords:
Import Elasticity; Thirlwall’s Law; Balance-of-Payments-Constrained Growth; Latin America; Bayesian Estimation; Time-Varying Parameter