Endogenous growth and changing sectoral composition in advanced economies

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Luigi Bonatti* and Giulia Felice** Terms of use: Documents in Endogenous growth and changing sectoral composition in advanced economies ABSTRACTDespite the striking evidence of the changing sectoral composition in employment and output shares characterizing the growth process, structural change is usually disregarded in growth modeling. In contrast,we focus on how structural change can affect aggregate growth by presenting a two-sector model with a "progressive" industry ("manufacturing"), which exhibits endogenous technological progress and produce both for consumption and for investment, and a technologically "stagnant" industry ("services"), which produces only for consumption. Within this framework, we show under what conditions on preferences perpetual growth can be generated. In particular, the paper demonstrates that positive long-term growth is possible even if what households spend on services tends to increase more than proportionally than their total consumption expenditure, namely when preferences are non-homothetic. This is at odds with previous literature arguing that Baumol's "asymptotic stagnancy" applies when the stagnant industries supply final products. Moreover, the paper does not limit its attention to the balanced growth path: numerical examples illustrate how the transition path displays the regularities which appear to characterize the structural dynamics in advanced economies.

The Drivers of Structural Change

“…A first facet of the literature on structural change shows that the process of reallocation of economic activity across sectors can be due to changes in the structure of demand resulting from changes in real income (e.g. Pasinetti, 1981;Falkinger, 1994;Echevarria, 1997;Laitner, 2000;Zweimüller, 2000;Caselli and Coleman, 2001;Kongsamut et al, 2001;Gollin et al, 2002Gollin et al, , 2007Greenwood and Seshadri, 2002;Meckl, 2002;Steger, 2006;Bonatti and Felice, 2008;Foellmi and Zweimüller, 2008;Duarte and Restuccia, 2010;Boppart, 2014). Structural change, therefore, is driven by non-homothetic tastes, such as the Stone-Geary preferences, which generate non-linear Engel curves.…”

“…In line with the recommendations of Acemoglu (2009), recent literature has made considerable effort to incorporate non-homothetic preferences and cross-sector differences in technology within the same analytical framework (e.g. Bonatti and Felice, 2008;Dennis and Iscan, 2009;Kaboski, 2009, 2012a,b;Guillo et al, 2011;Boppart, 2014;Alonso-Carrera and Raurich, 2015;Alvarez-Cuadrado et al, 2017;Comin et al, 2018;Swiecki, 2017). A strand of this literature has been devoted to quantifying the relative importance of real income and relative price effects in driving the patterns of structural change.…”

Is growth declining in the service economy?

“…8) In our model, only labor is the primary factor of production. For an analysis of a service-oriented economy using models that consider capital accumulation, see Kongsamut et al (2001), Klyuev (2005), Bonatti and Felice (2008), and Batabyal and Nijkamp (2013).…”

Tertiarization and Human Capital: Do They Matter for Growth? Insights From Portugal

“…Reverse causation from economic growth to the expansion of services is also possible since economic growth leads to higher income per capita levels which, according to Engel"s law (higher income elasticity of demand in the services sector), results in a change in the structure of demand that shifts away from manufacturing products towards services (see e.g. Echevarria (1997), Foellmi and Zweimüller (2008), Ngai and Pissarides (2007) and Bonatti and Felice (2008)). Adjustments in the structure production occur in response to demand side changes so that economic growth is causing structural change towards the services sector.…”