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

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  • Nicholas Oulton

    (Centre for Macroeconomics (CFM)
    National Institute of Economic and Social Research
    Economic Statistics Centre of Excellence)

Abstract

I propose a new explanation for the UK productivity puzzle. I graft the Lewis (1954) model onto a standard Solow growth model. What I call 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. I also argue that the neo-Lewis model can explain the fall in TFP growth, in the UK and elsewhere, after 2007. The predictions of the neo-Lewis model are tested on data for 23 advanced countries and also on a larger sample of 52 countries and find support.

Suggested Citation

  • Nicholas Oulton, 2018. "The UK (and Western) Productivity Puzzle: Does Arthur Lewis Hold the Key?," Discussion Papers 1809, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:1809
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    Cited by:

    1. N. Cordemans, 2018. "Low productivity growth," Economic Review, National Bank of Belgium, issue iv, pages 67-80, december.
    2. Nicholas Oulton, 2022. "The Productivity-Welfare Linkage: A Decomposition," Discussion Papers 2205, Centre for Macroeconomics (CFM).
    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. 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.
    5. 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.
    6. Ian Goldin & Pantelis Koutroumpis & François Lafond & Julian Winkler, 2024. "Why Is Productivity Slowing Down?," Journal of Economic Literature, American Economic Association, vol. 62(1), pages 196-268, March.
    7. Dale W. Jorgenson, 2019. "Introduction," International Productivity Monitor, Centre for the Study of Living Standards, vol. 36, pages 1-6, Spring.
    8. 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.
    9. 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.
    10. 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).
    11. John Fernald & Robert Inklaar, 2022. "The UK Productivity Puzzle in an International Comparative Perspective," Working Papers 020, The Productivity Institute.
    12. N. Cordemans, 2019. "Inclusive growth: a new societal paradigm?," Economic Review, National Bank of Belgium, issue i, pages 29-50, June.
    13. Bart van Ark & Venables, 2021. "A concerted effort to tackle the productivity puzzle during the post-COVID era," Working Papers 001, The Productivity Institute.

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    More about this item

    Keywords

    Productivity; Slowdown; TFP; Capital; Lewis; Immigration;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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