Balance‐of‐payment constrained growth: the case of China, 1979–2002

The aim of this study is to empirically test the validity of Thirlwall’s Law in China during the reform period of 1979–2002. This study finds: (1) that for 1979–2002, the Chinese economy has grown on average as fast as Thirlwall’s Law predicts – the average actual growth rate and predicted growth rate were, respectively, 9.25 and 8.55, which are statistically identical; (2) that the growth of GDP and of exports are cointegrated. Both (1) and (2) provide strong support for Thirlwall’s Law in China during the reform period after 1978. The supportive result of Thirlwall’s Law implies the relevance of a demand‐side approach to the economic growth in China. For time series analyses, a bounds test approach is adopted.