Working Paper: NBER ID: w0851
Authors: Michael Bruno; Jeffrey Sachs
Abstract: This paper provides a theoretical and empirical analysis of the effects of input price shocks on economic growth, with a focus on United Kingdom manufacturing in the 1970s. The theoretical model predicts a discrete decline in out- put and productivity after an input price rise, and a longer-run slowdown in productivity growth, real wage growth, and capital accumulation. These features characterize the United Kingdom and most other OECD economies after 1973. The empirical results confirm the important role of input prices in recent U.K. adjustment, but also point to an important role for other supply and demand factors.
Keywords: input price shocks; economic growth; UK manufacturing; productivity; capital accumulation
JEL Codes: E31; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Input price increases (E31) | Decline in output (E23) |
| Input price increases (E31) | Decline in productivity (O49) |
| Input price increases (E31) | Decline in profitability (L21) |
| Decline in profitability (L21) | Affects production decisions (D24) |
| Input price increases (E31) | Long-run slowdown in productivity growth (O49) |
| Input price increases (E31) | Long-run slowdown in capital accumulation (E22) |
| Input price increases (E31) | Long-run slowdown in real wage growth (J39) |
| Input price increases (E31) | Decline in output and productivity (O49) |