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Growth, Sectoral Composition, and the Wealth of Nations

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  • Jaime Alonso-Carrera
  • Xavier Raurich

Abstract

This paper asserts that the accumulation of capital causes cross-country differences in GDP per capita by generating disparities in the sectoral structure. For that purpose, we characterize the dynamic equilibrium of an endogenous growth that exhibits sectoral change due to the introduction of heterogenous consumption goods and of a minimum consumption requirement. In this model, economies with the same fundamentals but different endowments of capitals will end up growing at a common rate, although the long run level and sectoral composition of GDP will be different. Because total factor productivity depends on sectoral composition, capital endowments will also contribute to GDP by means of changing the sectoral composition. This suggests that the development accounting exercises should consider the endogeneity of total factor productivity when measuring the contribution of capital to GDP. Along the transition, the slope of the policy functions depends on the initial values of the capital stocks and of the minimum consumption requirement. This implies that the minimum consumption is a barrier to development and that economies initially similar may diverge along the transition.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 278.

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Date of creation: May 2006
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Handle: RePEc:bge:wpaper:278

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Keywords: sectorial composition; human capital; endogenous growth; two-sector growth model;

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Cited by:
  1. Daniel Cardona & Fernando Sanchez Losada, 2007. "Cost-Based Models of Economic Growth," Working Papers in Economics 179, Universitat de Barcelona. Espai de Recerca en Economia.
  2. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2009. "Transitional Dynamics in an Endogenous Growth Model with Heterogeneous Consumption Goods," DEGIT Conference Papers c014_018, DEGIT, Dynamics, Economic Growth, and International Trade.

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