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John McCombie’s Contribution to the Applied Economics of Growth in a Closed and Open Economy

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Abstract

Tony Thirlwall, in this chapter, entitled ‘John McCombie’s Contribution to the Applied Economics of Growth in a Closed and Open Economy’, focuses on John McCombie’s major contributions to our understanding of growth rate differences between countries. This chapter is divided into three parts. The first part deals with Kaldor’s growth laws and particularly John’s work on Verdoorn’s Law—its estimation, and resolving the static/dynamic paradox that increasing returns are found when the growth of labour productivity is regressed on the growth of manufacturing output but not when the log level of productivity is regressed on the level of manufacturing output. The second part outlines John’s contribution to the theory of balance of payments-constrained growth, particularly showing that the dynamic Harrod trade multiplier result can be interpreted as the Hicks super multiplier. The third part shows that Kaldor’s first law of growth, that manufacturing is the engine of growth, is also a reduced form of an export-led growth model, because the export growth of countries is closely related to the growth of manufactured exports.

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Notes

  1. 1.

    There are only three references to Verdoorn’s 1949 paper between 1949 and 1966: two by Colin Clark (1957, 1962) and one by Kenneth Arrow (1962) (see McCombie et al. 2002).

  2. 2.

    Interestingly, the static/dynamic paradox does not seem to exist using time series data or with panel estimation using two-way fixed effects. The latter is illustrated in Leon-Ledesma (2000) for Spanish regions and, also, Angeriz et al. (2008) across 54 European regions 1986–2002.

  3. 3.

    The authors show that it arises through adding up the output and inputs of so-called Functional Economic Areas within a region to estimate the static law, whereas taking the dynamic specification, the growth rates of outputs and inputs are dimensionless.

  4. 4.

    He had forgotten that the income elasticities used from Houthakker and Magee (1969) were estimated controlling for relative price changes in the equation.

  5. 5.

    Allowance for interest rate payments on past debt makes a bigger difference (see later).

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Authors and Affiliations

  1. School of Economics, Keynes College, University of Kent, Canterbury, UK

    A. P. Thirlwall

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  1. Department of Land Economy, University of Cambridge, Cambridge, United Kingdom

    Philip Arestis

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Thirlwall, A.P. (2018). John McCombie’s Contribution to the Applied Economics of Growth in a Closed and Open Economy. In: Arestis, P. (eds) Alternative Approaches in Macroeconomics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-69676-8_2

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