Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/184824 
Year of Publication: 
2017
Series/Report no.: 
UCD Centre for Economic Research Working Paper Series No. WP17/24
Publisher: 
University College Dublin, UCD School of Economics, Dublin
Abstract: 
Standard economic theories have severe difficulties in simultaneously explaining a number of key aggregate empirical facts: i) there are substantial differences in capital-labor ratios across time ii) despite continuously increasing capital-labor ratios, both factors still earn non-negligible shares in income iii) labor hours per capita are rather stable amid expanding consumption possibilities iv) price levels are higher in more developed countries v) there are no large gains from factor-proportions trade vi) the world trade-to-output ratio increases over time. I argue that standard economic theories ignore the vast improvements in goods quality and new products. I present an augmented standard model that incorporates these features and jointly rationalizes these six empirical facts.
Subjects: 
Engel's law
product quality and varieties
structural change
growth
trade
price levels
JEL: 
E23
E24
F11
F31
O41
Document Type: 
Working Paper

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