Test of the Balance of Payments Constrained Growth Constrained Growth Model in Iran's Agriculture Sector

This study reviews the empirical evidence of the Thirlwall’s Law, i.e. the balance-of-payments-constrained-growth model of the agricultural sector in Iran during the (1989-2012). Thirlwall shows that the growth rate is limited by the balance of payments, as the economy cannot grow faster than a rate that is compatible with a balance of payments or a minimum stable deficit. Thus Thirlwall’s Law states that the production growth rate consistent with the balance of payments is equal to the ratio of the growth rate of exports over imports income elasticity. In this study, we first estimate the agricultural crops import demand function using an ARDL model. Then by dividing the growth rate of agricultural exports on income elasticity of import demand Thirlwall equilibrium growth rate for the 17 series of overlapping periods of seven years is calculated. Results show that the Thirlwall growth rate in the beginning of periods is significantly different from actual growth rate of agriculture sector, but then this difference declines over time, and actual growth rate and the Thirlwall equilibrium growth rate get closer. Therefore, the results from this study confirm the validity of Thirlwall Law in the 2000s.