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The authors develop a framework for analyzing "Medium-run" departures from balanced growth, and apply it to the economies of continental Europe. A time-varying factor-augmenting production function (mimicking "Directed" technical change) with a below-unitary substitution elasticity coupled with supporting short-run factor demands (and price setting) is shown to account for the observed dynamics of factor incomes shares, capital deepening and the capital-output ratio. Based on careful data accounting, they also identify a rising mark-up, which they ascribe to the rise of Services. The balanced growth path emerges as a special (and testable) case of the framework, as do existing strands of medium-run debates.
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