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Evolution of the Relative Price of Goods and Services in a Neoclassical Model of Capital Accumulation
Author:
Mr. Vladimir Klyuev
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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 207
Language:
English
Publication Date:
01 Nov 2004
DOI:
https://doi.org/10.5089/9781451874686.001
ISBN:
9781451874686
ISSN:
1018-5941
Pages:
18
Keywords:
WP; interest rate; Capital accumulation; Balassa-Samuelson effect; two-sector growth model; capital mobility; accumulation equation; labor productivity growth; cross-border capital movement; goods production technology; Total factor productivity; Capital productivity; Labor productivity; East Asia; Western Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2004: Issue 207