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The UK and Western Productivity Puzzle: Does Arthur Lewis Hold the Key?

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  • Nicholas Oulton

Abstract

A new explanation for the UK and developed world productivity puzzle is proposed which grafts the Lewis (1954) model onto a standard Solow growth model. What is called here the neo-Lewis model is identical to the Solow model in good times. But in bad times foreign demand for a country’s exports is constrained below potential supply. This makes labour productivity growth depend negatively on the growth of labour input and positively on the growth of export demand.The predictions of the neo-Lewis model are tested on data for 23 countries (20 EU and 3 non-EU) and find support. It is also argued that the neo-Lewis model can explain the fall in TFP growth, in the UK and elsewhere, after 2007. This proposition also finds support when tested on a larger sample of 52 countries.

Suggested Citation

  • Nicholas Oulton, 2019. "The UK and Western Productivity Puzzle: Does Arthur Lewis Hold the Key?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 36, pages 110-141, Spring.
  • Handle: RePEc:sls:ipmsls:v:36:y:2019:5
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    Cited by:

    1. Nicholas Oulton, 2022. "The Productivity-Welfare Linkage: A Decomposition," Discussion Papers 2205, Centre for Macroeconomics (CFM).
    2. John G. Fernald & Robert Inklaar & Dimitrije Ruzic, 2023. "The Productivity Slowdown in Advanced Economies: Common Shocks or Common Trends?," Working Paper Series 2023-07, Federal Reserve Bank of San Francisco.
    3. Andreas Teichgraber & John Van Reenen, 2021. "Have Productivity and Pay Decoupled in the UK?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 41, pages 31-60, Fall.
    4. Dale W. Jorgenson, 2019. "Introduction," International Productivity Monitor, Centre for the Study of Living Standards, vol. 36, pages 1-6, Spring.
    5. Nicholas Oulton, 2019. "The UK and Western Productivity Puzzle: Does Arthur Lewis Hold the Key?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 36, pages 110-141, Spring.
    6. Goldin, Ian & Koutroumpis, Pantelis & Lafond, François & Winkler, Julian, 2020. "Why is productivity slowing down?," MPRA Paper 99172, University Library of Munich, Germany.
    7. Rebecca Riley & Ana Rincon-Aznar & Lea Samek, 2018. "Below the Aggregate: A Sectoral Account of the UK Productivity Puzzle," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2018-06, Economic Statistics Centre of Excellence (ESCoE).
    8. John Fernald & Robert Inklaar, 2022. "The UK Productivity Puzzle in an International Comparative Perspective," Working Papers 020, The Productivity Institute.
    9. Bart van Ark & Venables, 2021. "A concerted effort to tackle the productivity puzzle during the post-COVID era," Working Papers 001, The Productivity Institute.
    10. N. Cordemans, 2018. "Low productivity growth," Economic Review, National Bank of Belgium, issue iv, pages 67-80, december.
    11. N. Cordemans, 2019. "Inclusive growth: a new societal paradigm?," Economic Review, National Bank of Belgium, issue i, pages 29-50, June.
    12. Bart van Ark & Anthony J. Venables, 2020. "A Concerted Effort to Tackle the UK Productivity Puzzle," International Productivity Monitor, Centre for the Study of Living Standards, vol. 39, pages 3-15, Fall.
    13. Andrew Sharpe & James Ashwell, 2021. "The Evolution of the Productivity-Median Wage Gap in Canada, 1976-2019," International Productivity Monitor, Centre for the Study of Living Standards, vol. 41, pages 98-117, Fall.

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    More about this item

    Keywords

    United Kingdom; Productivity Puzzle; Neo-Lewis Model;
    All these keywords.

    JEL classification:

    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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