A Multi-Sectoral Study of Economic Growth

A study offered as a contribution to an important area of economic research and published under the regis of a series noted for its coIItributions warrants a careful evaluationi. Ill this review article such ail evaluation is attempted of A Multi-Sectoral Studly of Economtgic Growth by Professor Leif Johansen. The research reported in this book had its beginnings at the Inistitute of Economics, Oslo, in 1957, and was completed at the Departmnenlt of Applied Economics, Cambridge University, in 1958-59. The study benefited, according to the author, from seminars on the research presented at the Institute of Economics (Oslo), the Department of Applied E%conomics (Cambridge) and the Netherlands Economiiic Institute (Rotterdamn). The major objective of the study is to develop a model to explain long-run growth of the sectors of an economy and to estimate the parameters of the model for a particular economy. To focus attentioni on the sectors, the growth of the economy as a whole is assumed to be determined primarily by exogenous variables. The study, as a consequenice, has a limited objective and must be evaluated in this light. On the empirical side the author uses Norwegian data to estimate parameters of the mnodel, and from estimates of rates of growtll of exogenous variables computes the relative rates of chanige of the sector s of the Norwegian economy with respect to the endogenous variables: labour employed, capital employed, prices and output. In evaluating the study it is helpful to distinguislh between the idea and its specific execution. The idea of the study I find to be a notable contribution to applied econoomics. I would hope that other econiomists are encouraged to follow Professor Johansen's lead. The execution, however, is open to some question. The model seems inappropriate in important respects and tfie peculiarities of the model impair the usefulness of the empirical results. In the following sections these reser vations are examined in detail and suggestions for improving the model are offered as well.