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Growth and Structural Transformation

Author

Listed:
  • Richard Rogerson

    (Arizona State University)

  • Akos Valentinyi

    (University of Southampton)

  • Berthold Herrendorf

    (Arizona State University)

Abstract

We illustrate the usefulness of our approach by applying it to the so called Balassa-Samuelson effect, that is, in a cross sectional sense, countries with higher ppp adjusted incomes tend to have higher aggregate price levels (in a common numeraire). We show that as the US economy develops, its aggregate price level increases for two reasons. First, services experienced smaller TFP growth than the other two sectors. Second, the consumption share of services increased. This has the interesting implication that the difference in the aggregate price level between a slow and a fast growing economy should become larger over time. In other words, the Balassa-Samuelson effect should emerge endogenously. This prediction of our work is consistent with the observation that the Balassa-Samuleson effect is a fairly recent phenomenon that has become more pronounced over time.

Suggested Citation

  • Richard Rogerson & Akos Valentinyi & Berthold Herrendorf, 2007. "Growth and Structural Transformation," 2007 Meeting Papers 757, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:757
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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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