Monthly Archives: May 2016

Brussels Summer School scholarship success

Economics student, Ali Ahmed, is one of 10 students to have been awarded a scholarship to the University’s Brussels Summer School. Ali, a second-year student, was selected from almost 200 applicants due to his strong motivation and academic excellence.

The Brussels Summer School is centred on the theme of ‘Europe and the World’ and covers themes such as migration, the European Union’s (EU) relationship with emerging powers such as China, and the EU’s response to the global economic crisis.

Over a period of two weeks, students participate in a series of guest lectures, seminars and debates delivered by academics, policy-makers, diplomats and European civil servants. The summer school allows students to discover how the European Union functions with a particular focus on how it acts as a global organisation and the challenges it faces in today’s world.

Many congratulations, Ali, from the School of Economics! We hope you enjoy your time in Brussels.

Further details on the Summer School can be found here.




Professor Miguel Leon-Ledesma

The rise of the service economy and the real return on capital

A new discussion paper by Miguel León-Ledesma and Alessio Moro, KDPE 1604, May 2016.

Non-technical summary

The possible tendency for the returns to investment in real capital to fall as economies develop has been a long-standing problem in Economics that already preoccupied classical economists. In standard models of economic growth, the concept of balanced growth path (BGP) implies that the real return on capital, the rate of growth of GDP, the capital-to-output, and investment-to-output ratios are all constant. In the data, this is consistent with the so-called “Kaldor stylized facts”. Models of growth that achieve BGP, thus, imply that the rate of return on capital is constant in the long run.

However, several observations are at odds with this. First, when measured in real terms, i.e. deflated by their respective prices, the capital-to-output and the investment-to-output ratios in the US economy both have a positive trend. Intuitively, this implies a lower average product of capital and, under certain conditions, a lower marginal product. Second, recent evidence for the US shows that the so-called “natural” or equilibrium real interest rate has declined quite substantially during the past 50 years. This has occurred at a time when there has been a massive transformation in the structure of the economy from manufacturing to services. Consumption of services was a mere 40% of total consumption expenditure in 1950, and is now close to 70%. This was accompanied by a very marked decline in the prices of goods relative to services.

In this paper, we propose an explanation for all these facts. We use a model of structural change from goods producing to services producing industries driven by productivity growth differences between the two sectors. Productivity grows slower in services. This differential explains the drop in the relative price of goods. The model generates BGP, with a constant real return to capital. However, this is only the case if this return is measured in terms of a chosen price, the price of goods (including investment goods). If we take the model-generated real return and GDP growth, and we measure them as it is done in national accounts, we actually would observe a secular decline. This is because services are now a larger share of consumption and GDP and their prices grow faster, hence reducing the actual number of units of consumption or output that one can buy after an investment project in real capital (i.e., the real return).

We estimate that, for the 1950-2015 period, the fall in the real rate of return due to this mechanism is of the order of 40%. The rate of growth of GDP falls by a less substantial 16% for the 65 years of the sample. These are both very significant shifts with important consequences for macroeconomic policy design, pension plans projections, and financial management.

HS2 economic adviser gives lecture on how high speed rail may transform East Midlands

The economic adviser to HS2 Ltd, the company responsible for developing and promoting the UK’s new high-speed rail network, is to speak at The University of Nottingham on Monday 9 May 2016. Roger Vickerman , Dean for Europe and Professor of European Economics at the University of Kent, will discuss the future economic impact that HS2 could have on the East Midlands region.

CEO of East Midlands Trains, Stuart Young; Chair of Midlands Connect, Sir John Peace and Rowena Limb , Area Director for Business, Innovation and Skills (East Midlands) will also be in attendance.

High-speed rail is often claimed to have a transformative effect on local economies as it improves transport connectivity, which in turn leads to enhanced growth and productivity between cities. However, a counter argument is that that such effects are largely redistributive with some regions benefiting and others suffering, depending on their ability to take advantage of new opportunities.

This free lecture will explore the impact in similar cases, such as the HS1 line in Kent, to assess whether major transport investment can help to redress regional disparities, particularly if coupled with other policy interventions.

Professor Vickerman’s research focuses on the relationship between transport (especially infrastructure), regional development and integration in the European Union. Particularly known for his studies on major infrastructure projects, particularly high-speed rail, he is currently a member of the Economics Advisory Panel to HS2 Ltd and editor-in-chief of Transport Policy journal.

He has also served as an advisor to Committees of both the House of Commons and House of Lords and acted as a consultant to the European Commission, various government departments and regional and local government authorities in the UK and overseas.

This event has been coordinated by the Aerospace and Transport Technologies Research Priority Area (RPA) at The University of Nottingham.

The RPA has drawn together expertise in a range of disciplines, extensive industrial partnerships and successes as a world-leading centre for aerospace research collaboration with the aim to build an international profile for high-impact transport and mobility research.

Original article published in