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The UK (and Western) productivity puzzle: does Arthur Lewis hold the key?

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  • Oulton, Nicholas

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 neoLewis model are tested on data for 23 advanced countries and also on a larger sample of 52 countries and find support.

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  • Oulton, Nicholas, 2018. "The UK (and Western) productivity puzzle: does Arthur Lewis hold the key?," LSE Research Online Documents on Economics 87394, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:87394
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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. Goldin, Ian & Koutroumpis, Pantelis & Lafond, François & Winkler, Julian, 2020. "Why is productivity slowing down?," MPRA Paper 99172, University Library of Munich, Germany.
    3. Dale W. Jorgenson, 2019. "Introduction," International Productivity Monitor, Centre for the Study of Living Standards, vol. 36, pages 1-6, Spring.
    4. 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.
    5. N. Cordemans, 2019. "Inclusive growth: a new societal paradigm?," Economic Review, National Bank of Belgium, issue i, pages 29-50, June.
    6. 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).
    7. Lafond, François & Goldin, Ian & Koutroumpis, Pantelis & Winkler, Julian, 2022. "Why is productivity slowing down?," INET Oxford Working Papers 2022-08, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    8. 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.
    9. John G. Fernald & Robert Inklaar, 2022. "The UK Productivity “Puzzle” in an International Comparative Perspective," Working Paper Series 2022-07, Federal Reserve Bank of San Francisco.
    10. 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
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; 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

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