can be measured even in theory; if not, neither can the Solow residual. The Solow growth model is a model of economic development into which the Solow residual can be added exogenously to allow predictions of GDP growth at differing levels of productivity growth. The Balassa–Samuelson effect describes the effect of variable Solow residuals: it assumes that mass-produced traded goods have a higher residual than does the service sector. This assumption has been used to explain the PPP-deviations, and may create a 'drag' on the overall-residual as more effort is moved into services industries precisely because they have low productivity growth (being harder to automate.) Multifactor productivity References Further reading Gives a clear introduction to the model above in its first chapter. Later chapters extend this into the modern analysis of endogenous growth. The book also discusses the residual's significance in growth accounting. External links Does the Solow Residual for Korea Reflect Pure Technology Shocks? – a paper showing how modern econometric techniques such as cointegration are being used to draw a more reliable inference on the Solow residual, because the real world is not like the smoothly evolving model described in the simple regression here. Economic growth Economic indicators