Non-tradables are key to a few interpretations about what is wrong with the Portuguese economy and Miguel argues on such lines below. The argument is roughly that growth is sluggish because there is a policy driven structure of incentives that lead to too much investment in those sectors that produce goods ans services that are not traded internationally. Ok, let's agree with that for the sake of the argument. What we lack then is to know how much? I have never came up to an estimate of the share of non-tradables in GDP and its growth in recent years. And we would have to have some kind of comparison with the rest of the World. I am under the impression that non-tradables are hard to quantify because there are no clear divisions between sectors.
I would offer an alternative explanation about what is going on concerning services (not the same as non-tradables, of course). Demand for services has risen because that is what happens at Portugal's present level of GDP per capita (people simply demand more education, more health services, better transportation) and that has been followed by a Baumol effect on wages. It is important to note that if that is the case, economic policy has little to do with it.
But the bottom line here is: we need a measure for the share on non-tradables in GDP, in Portugal and elsewhere, in order to proceed with the discussion about their role in economic growth.
Saturday 6 March 2010
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"Demand for services has risen because that is what happens at Portugal's present level of GDP per capita (people simply demand more education, more health services, better transportation) and that has been followed by a Baumol effect on wages"
ReplyDeleteI totally agree, but I think you missed some quite important sectors: the residential construction (which have risen a lot in the 2nd half of the 90's), public works and also the retail trade services.
It is always somewht disputable but I think it should be possible to get a rough idea of the share of non-tradables base on the analysis of the gross value added by sector of activity.