Macroeconomic consequences of increased productivity in less developed economies

Syed Ali, Sajid Anwar and Abbas Valadkhani

Economic Modelling, 2012, vol. 29, issue 3, 621-631

Abstract: This paper examines the impact of improvements in productivity on prices, output, the real wage rate and the balance of payments. Within the context of the model used in this paper, an improvement in productivity can take two alternative forms: (1) a cost saving for a given output and (2) an increase in production without a direct decrease in employment. The results presented are based on a simple model of a small open economy that includes some key features of less developed economies. It is shown that, in the presence of monetary and fiscal restraints, an improvement in productivity leads to increases in output, employment and the real wage and the effect on the balance of payments, in the short and the medium runs, is also positive. We find that whether or not improvement in productivity is import saving plays a crucial role in both comparative static and simulation exercises.

Keywords: Productivity; Balance of payments; Less developed countries (search for similar items in EconPapers)
JEL-codes: F41 F49 O11 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:3:p:621-631

DOI: 10.1016/j.econmod.2011.11.005

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