Sectoral Composition and Macroeconomic Dynamics
AbstractWe analyze the transitional dynamics of a model with heterogeneous consumption goods. In this model, convergence is driven by two different forces: the typical diminishing returns to capital and the sectoral change inducing the variation in relative prices. We show that this second force a�ects the growth rate if the two consumption goods are not Edgeworth independent and if these two goods are produced with technologies exhibiting different capital intensities. Because the aforementioned dynamic sectoral change arises only under heterogeneous consumption goods, the transitional dynamics of this model exhibits striking differences with the growth model with a single consumption good. We also show that these differences in the transitional dynamics can give raise to large discrepancies in the welfare cost of shocks between the economy with a unique consumption good and the economy with multiple consumption goods.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 545.
Date of creation: Apr 2011
Date of revision:
multi-sector growth models; transitional dynamics; consumption growth;
Other versions of this item:
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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