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Evolution of the Relative Price of Goods and Services in a Neoclassical Model of Capital Accumulation

  • Vladimir Klyuev

This paper provides an explanation for the secular increase in the price of services relative to that of manufactured goods that relies on capital accumulation rather than on an exogenous total factor productivity growth differential. The key assumptions of the two-sector, intertemporal optimizing model are relatively high capital intensity in the production of goods and limited cross-border capital mobility, allowing the interest rate to vary. With plausible parameterization, the model also predicts a decline in the employment share of the goods sector over time.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/207.

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Length: 18
Date of creation: 01 Nov 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/207
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  1. Brock, Philip L, 1994. "Economic Development and the Relative Price of Nontradables: Global Dynamics of the Krueger-Deardorff-Leamer Model," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 268-83, October.
  2. Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
  3. Matthew B. Canzoneri & Robert E. Cumby & Behzad Diba, 1996. "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," NBER Working Papers 5676, National Bureau of Economic Research, Inc.
  4. Leslie Lipschitz & Alex Mourmouras & Timothy D. Lane, 2002. "Capital Flows to Transition Economies: Master or Servant?," IMF Working Papers 02/11, International Monetary Fund.
  5. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, vol. 86(5), pages 1216-38, December.
  6. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150, March.
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