Annex: The Thirlwall-Hussain Model

The basis for the TH model is the two-gap model (equation 1), which considers the savings gap (left hand side) or the foreign exchange gap – also known as the external finance gap – (the first term on the right hand side) as the most binding constraints, because the government budget deficit is considered as being driven by one of those gaps.

Related Subject(s): Economic and Social Development