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Industry Dynamics and Aggregate Stability over Transition

Author

Listed:
  • Pedro Mazeda Gil

    (Faculdade de Economia, Universidade do Porto)

  • Oscar Afonso

    (Faculdade de Economia, Universidade do Porto)

  • Paulo B. Vasconcelos

    (Faculdade de Economia, Universidade do Porto)

Abstract

This paper presents an endogenous growth model of directed technical change with vertical and horizontal R&D to study an analytical mechanism that is consistent with the coexistence of aggregate stability and structural change. We focus on changes in the share of the high- versus the low-tech sectors in the context of a slow, but flexible, transitional dynamics that arises from a dynamic system with a three-dimensional stable manifold. Under the hypothesis of a positive shock in the proportion of high-skilled labour, the technological-knowledge bias channel leads to nonbalanced sectoral growth, while the aggregate variables remain approximately constant and thus consistent with the Kaldor facts. With prevailing market-scale effects, a calibration exercise shows that the model is able to account for around two-thirds of the increase in the share of the high-tech manufacturing sectors observed in European data from 1995 to 2007.

Suggested Citation

  • Pedro Mazeda Gil & Oscar Afonso & Paulo B. Vasconcelos, 2013. "Industry Dynamics and Aggregate Stability over Transition," FEP Working Papers 484, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:484
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    References listed on IDEAS

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    More about this item

    Keywords

    industry dynamics; Kaldor facts; high tech; low tech; directed technical change;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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