Technological Progress, Factor Endowments and Structural Change: A Note

Economic development is accompanied by structural change. The trade theoretic literature offers two major hypotheses - i.e. the factor - endowment and the total-factor-productivity - i.e. the factor-endowment and the total-factor-productivity - for explaining the stylised facts of structural change. This note revisits these hypotheses. In particular, it explores, with the help of a simple geometric apparatus, the analytical implications of the two hypotheses and draws out their striking similarities. It argues that although the literature has treated these two hypotheses as distinctly different, they are indeed analytically equivalent in the sense that they are both based on a similar type of shifts in the production functions. An important implication of this analytical equivalence is that, compounded with the data problems, it makes the task of empirical testing and discriminating between the two alternative hypotheses virtually impossible.