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Time-varying capital intensities and the hump-shaped evolution of economic activity in manufacturing

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  • Sáenz, Luis Felipe

Abstract

Manufacturing’s share of employment is known to follow a hump-shaped pattern as economies structurally transform. Motivated by the observation that sectoral capital intensities evolve over time, this paper examines whether such changes are important in accounting for this pattern. It does this by putting forth a structural transformation theory that allows for time-varying capital intensities, heterogeneous TFP, Engel curves and trade. The model is calibrated to South Korea (1970–2010), a country for which the rise and decline of the manufacturing employment share occurred within four decades for which comprehensive measures of sectoral capital income shares are available. I show that whereas traditional drivers matter for various elements of development, time-varying capital intensities are critical for generating the complete hump-shaped pattern in manufacturing employment: Time-varying capital intensities trigger an additional “push” of labor out of manufacturing, generating differences between employment and value added shares that are in line with the observed patterns of structural transformation in South Korea.

Suggested Citation

  • Sáenz, Luis Felipe, 2022. "Time-varying capital intensities and the hump-shaped evolution of economic activity in manufacturing," Journal of Macroeconomics, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:jmacro:v:73:y:2022:i:c:s0164070422000271
    DOI: 10.1016/j.jmacro.2022.103429
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    More about this item

    Keywords

    Structural transformation; Hump-shape; Manufacturing employment share; Deindustrialization; Time-varying capital intensities; Factor shares;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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