Development, growth and volatility
Does GDP composition affect GDP growth and volatility? Typically, economies at advanced stages of development grow slower, are less volatile and have a larger share of services in GDP with respect to economies at middle stages. I propose a theory of development consistent with these three facts. I show that even when total factor productivity (TFP) growth and volatility are the same in manufacturing and services at the gross output level, the larger intensity of intermediate goods in gross output production in manufacturing implies a larger growth and volatility of TFP at the value added level in manufacturing than in services. As GDP is a weighted average of value added of the sectors in the economy, a larger share of services in the economy implies both a smaller GDP growth and a smaller GDP volatility. Numerical results suggest that along a transition path in which the share of services increases from 0.41 to 0.73, the same gross output TFP process in manufacturing and services implies a per-capita GDP growth and volatility 21% and 18% larger in the first part of the transition with respect to the second. These numbers represent 95% of the difference in per-capita GDP growth and 95% of the difference in per-capita GDP volatility between middle and high income economies during the 1970-2006 period. Also, the model can account for 58% of the per-capita GDP growth and 32% of the per-capita GDP volatility differences measured in the U.S. between the 1950-1978 and 1979-2007 periods.
|Date of creation:||Jul 2010|
|Contact details of provider:|| Web page: http://www.bde.es/|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:1023. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (María Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de España)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.