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Capital Deepening and Non-Balanced Economic Growth

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Daron Acemoglu
Veronica Guerrieri

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Abstract

This paper constructs a model of non-balanced economic growth. The main economic force is the combination of differences in factor proportions and capital deepening. Capital deepening tends to increase the relative output of the sector with a greater capital share, but simultaneously induces a reallocation of capital and labor away from that sector. We first illustrate this force using a general two-sector model. We then investigate it further using a class of models with constant elasticity of substitution between two sectors and Cobb-Douglas production functions in each sector. In this class of models, non-balanced growth is shown to be consistent with an asymptotic equilibrium with constant interest rate and capital share in national income. We also show that for realistic parameter values, the model generates dynamics that are broadly consistent with US data. In particular, the model generates more rapid growth of employment in less capital-intensive sectors, more rapid growth of real output in more capital-intensive sectors and aggregate behavior in line with the Kaldor facts. Finally, we construct and analyze a model of “non-balanced endogenous growth,” which extends the main results of the paper to an economy with endogenous anddirected technical change. This model shows that equilibrium will typically involve endogenous non-balanced technological progress.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12475.

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Date of creation: Aug 2006
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Handle: RePEc:nbr:nberwo:12475

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Find related papers by JEL classification:
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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Cited by:
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  1. Arezki, Rabah & Cherif, Reda & Piotrowski, John, 2009. "Tourism Specialization and Economic Development: Evidence from the UNESCO World Heritage List," MPRA Paper 17132, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Ju, Jiandong & Lin, Justin Yifu & Wang, Yong, 2009. "Endowment structures, industrial dynamics, and economic growth," Policy Research Working Paper Series 5055, The World Bank. [Downloadable!]
  3. repec:bep:maccon:v:8:y:2008:i:1:p:1547-1547 is not listed on IDEAS
  4. George Bitros, 2008. "Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent," The Review of Austrian Economics, Springer, vol. 21(4), pages 301-328, December. [Downloadable!] (restricted)
  5. Joseph K. Kaboski, 2009. "Education, Sectoral Composition and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 168-182, January. [Downloadable!] (restricted)
    Other versions:
  6. Karen Pittel & Lucas Bretschger, 2008. "Sectoral Heterogeneity, Resource Depletion, and Directed Technical Change: Theory and Policy," Economics working paper series 08/96, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  7. Yi Jin & Zhixiong Zeng, 2006. "Distribution services and economic growth," Economics Bulletin, Economics Bulletin, vol. 15(10), pages 1-6. [Downloadable!]
  8. L. Rachel Ngai & Roberto M. Samaniego, 2006. "An R&D-Based Model of Multi-Sector Growth," CEP Discussion Papers dp0762, Centre for Economic Performance, LSE. [Downloadable!]
  9. Benjamin N. Dennis & Talan Iscan, 2007. "Accounting for Structural Change: Evidence from Two Centuries of U.S. Data," Department of Economics at Dalhousie University working papers archive account7, Dalhousie, Department of Economics. [Downloadable!]
  10. Ngai, Liwa Rachel & Samaniego, Roberto, 2007. "On the Long run Determinants of Industry TFP Growth Rates," CEPR Discussion Papers 6408, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Enrique R. Casares, 2007. "Productivity, Structural Change in Employment and Economic Growth," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 22(2), pages 335-355. [Downloadable!]
  12. Catia Batista & Jacques Potin, 2007. "Stages of diversification and specialization in an Heckscher-Ohlin world, 1976-2000," Economics Series Working Papers 356, University of Oxford, Department of Economics. [Downloadable!]
  13. Evangelia Vourvachaki, 2005. "Information and Communication Technologies in a Multi-Sector Endogenous Growth Model," Money Macro and Finance (MMF) Research Group Conference 2005 10, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  14. Hernando Zuleta & Andrew T. Young, 2007. "Labor's Shares – Aggregate and Industry: Accounting for both in a model of unbalanced growth with induced innovation," DOCUMENTOS DE TRABAJO 003105, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  15. Lopez, Ramon & Stocking, Andrew, 2009. "Bringing Growth Theory "Down to Earth"," Working Papers 48944, University of Maryland, Department of Agricultural and Resource Economics. [Downloadable!]
  16. Francisco J. Buera & Joseph Kaboski, 2008. "Scale and the origins of structural change," Working Paper Series WP-08-06, Federal Reserve Bank of Chicago. [Downloadable!]
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