Engel versus Baumol: Accounting for structural change using two centuries of U.S. data

Growth and Structural Transformation

“…In contrast to Dennis and Iscan (2009), who considered the allocation of employment between agriculture and non-agriculture in the US since 1800, Herrendorf et al (2013) consider the reallocation among consumption expenditure shares for all three sectors in the US since 1947. Specifically, starting with a stand-in household, they asked whether the utility function in (1) Although this seems to be a simple question, Herrendorf et al (2013) argued that the question is not even properly specified.…”

“…5 Appendix A contains a detailed description about the historical data sources that we use. Many of them are also underlying the recent historical studies by Dennis and Iscan (2009) about structural transformation in the United States and by Alvarez-Cuadrado and Poschke (2011) about structural transformation in twelve industrialized countries including the United States. countries that can be studied to those that are currently rich, and so it leaves open the question of whether currently poor countries show the same regularities that currently rich countries showed when they were poor a century or two ago. Limiting attention to long time series data has the additional disadvantage that despite major improvements in constructing historical time series, they typically do not reach the quality of the best data sets for recent years.…”

“…The main findings of Dennis and Iscan (2009) We want to stress three key implications of the results of Dennis and Iscan (2009). First, the fact that their model does a reasonable job of capturing the movement of labor out of agriculture over a long time period suggests that our benchmark model is sufficiently rich to capture some key features in the data.…”

“…Dennis and Iscan (2009) calibrate the key parameters of the model (elasticity of substitution, subsistence terms, preference weights, and capital shares) and then assess the extent to which equation (47) holds in the data. In particular, they substitute actual values into the right-hand side of equation (47), solve for the implied share of labor allocated to agriculture and compare this to the actual series from the data.…”

Growth and Structural Transformation

“…It is also relevant to note some limitations of the analysis in Dennis and Iscan (2009). First, it only focuses on the movement of labor out of agriculture and does not address the issue of what forces shape the allocation of employment between manufacturing and services.…”