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

Author/Editor: Klyuev, Vladimir
Authorized for Distribution: November 1, 2004
Electronic Access: Free Full Text (PDF file size is 338KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
Series: Working Paper No. 04/207
Subject(s): Capital accumulation | Capital flows | Capital goods | Consumer goods | Economic models
Author's keyword(s): capital accumulation | Balassa-Samuelson effect | two-sector growth model
 
English  
    Published:   November 1, 2004        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2072004   Pages:   17
    Price:   US$15.00
       
     
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