Engel versus Baumol: Accounting for structural change using two centuries of U.S. data
AbstractIn the last two centuries, the reallocation of labor out of agriculture has been a dominant feature of structural change and economic growth in the United States. This paper uses an accounting framework founded in economic theory to decompose this reallocation into three components: a demand-side effect due to the low income elasticity of demand for agricultural goods (Engel effect), and two supply-side effects, one due to differential sectoral productivity growth rates (Baumol effect), and the other to differential capital deepening. The results show that the Engel effect accounts for almost all labor reallocation until the 1950s, after which the Baumol effect becomes a key determinant. Our framework provides a unified account of long-run structural change, and demonstrates that historical interpretations and theoretical models that emphasize only one dimension of this process cannot properly account for the dramatic history of labor reallocation in the United States.
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Bibliographic InfoArticle provided by Elsevier in its journal Explorations in Economic History.
Volume (Year): 46 (2009)
Issue (Month): 2 (April)
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Web page: http://www.elsevier.com/locate/inca/622830
Long-run structural change Engel's law Differential sectoral productivity growth Differential sectoral capital deepening;
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