An Empirical Investigation of Long-Run Growth in the UK
Posted: 1 Nov 2005
Abstract
In this paper the long-run growth of the UK economy is analysed over the period 1855-1997, using a Markov-Switching cointegration approach. We find that long-run economic growth can be explained by two permanent shocks, namely a technological shock and a labour supply shock. While technological progress seems to have a positive impact on the wage share and on income equality, the labour supply shock has the opposite effect, contributing to income inequality. Both shocks have a positive impact on aggregate output, but the bulk of long-run output growth variability is explained by the labour supply shock, suggesting that inequality is not harmful to growth.
Keywords: Markov switching, common trends, economic growth
JEL Classification: C32, O11
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