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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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    More about this item

    Keywords

    Productivity; Slowdown; TFP; Capital; Lewis; Immigration;

    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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