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Evolution of the Relative Price of Goods and Services in a Neoclassical Model of Capital Accumulation

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  • Vladimir Klyuev

    (IMF)

Abstract

The paper provides an explanation for the secular increase in the price of services relative to that of manufactured goods that relies on capital accumulation rather than on an exogenous total factor productivity growth differential. The key assumptions of the two-sector, intertemporal optimizing model are relatively high capital intensity in the production of goods and limited cross-border capital mobility, allowing the interest rate to vary. With plausible parameterization, the model also predicts a decline in the employment share of the goods sector over time. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2005.01.010
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 3 (July)
Pages: 720-730

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Handle: RePEc:red:issued:v:8:y:2005:i:3:p:720-730

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Related research

Keywords: Capital accumulation; Balassa-Samuelson effect; Two-sector growth model;

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References

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  1. Brock, Philip L, 1994. "Economic Development and the Relative Price of Nontradables: Global Dynamics of the Krueger-Deardorff-Leamer Model," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 268-83, October.
  2. Matthew B. Canzoneri & Robert E. Cumby & Behzad Diba, 1996. "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," NBER Working Papers 5676, National Bureau of Economic Research, Inc.
  3. Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
  4. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, vol. 86(5), pages 1216-38, December.
  5. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150, March.
  6. Leslie Lipschitz & Alex Mourmouras & Timothy D. Lane, 2002. "Capital Flows to Transition Economies," IMF Working Papers 02/11, International Monetary Fund.
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Cited by:
  1. Hernando Zuleta & Andrew T. Young, 2010. "Labor’s Shares in a Model of Induced Innovation," Working Papers 10-01, Department of Economics, West Virginia University.
  2. Enrique R. Casares, 2007. "Productivity, Structural Change in Employment and Economic Growth," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 22(2), pages 335-355.
  3. Hernando Zuleta & Andrew T. Young, 2007. "Labor's shares - aggregate and industry: accounting for both in a model of unbalanced growth with induced innovation," DOCUMENTOS DE TRABAJO 003105, UNIVERSIDAD DEL ROSARIO.

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