A research collaboration between Miguel Leon-Ledesma and Alessio Moro (University of Cagliari), has been selected as the Research Highlight of the month by the American Economic Journal: Macroeconomics.
It studies the effects of the large shift in production and workers to the services sector in the past six decades for the process of economic growth and development: countries get richer, resources shift towards the services sector. This has consequences for economic growth, investment rates, and interest rates.
“Using a two-sector growth model we show that, in addition to Baumol’s cost disease, structural transformation from goods to services generates other predictions that are in line with cross-country growth facts: an increase in the real investment rate, a decline in the real interest rate and the marginal product of capital, and an acceleration of investment-specific technological change as the share of services increases.”
Also significant, is how economists often regard low investment rates in developing countries.
“This is important when we compare the macroeconomic performance of countries. Countries at different stages of the development process will have different growth rates, real investment rates, and interest rates, even in the absence of market failures.” Leon-Ledesma explained.
“Also, we show that models that “theoretically” display the notion of balanced growth, can actually generate non-balanced growth in the data. That is, observing changing growth rates in the long run in the data doesn’t imply that we have to ditch traditional models of balanced growth.”
Read the full paper here.