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Structural Change and the Kaldor Facts of Economic Growth

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  • Reto Foellmi

    ()
    (Institute for Empirical Research in Econ University of Zurich)

  • Josef Zweilmueller

Abstract

The model presented in this paper reconciles two of the most important features of the long-run growth process: the massive changes in the structure of production and employment; and the Kaldor facts of economic growth. Structural change occurs because Engel-curves are non-linear. Each new good goes through Engel's consumption cycle, i.e. starts out as a luxury with a high income elasticity and ends up as a necessity with a low income elasticity. The coexistence of stagnating and expanding industries imply a changing sectoral composition and a continuous reallocation of labor across sectors. Nonetheless macroeconomic aggregates grow at a constant rate, and the real interest rate and the labor share are constant. Our model also addresses the two-way causality between economic growth and structural change. Complementarities between aggregate and sectoral growth may give rise to multiple equilibria providing a possible explanation for development failures

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 342.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:342

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Keywords: Kaldor facts; Engel-curve; structural change; structural transformation; hierarchic preferences;

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Citations

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Cited by:
  1. Daron Acemoglu & Veronica Guerrieri, 2006. "Capital Deepening and Non-Balanced Economic Growth," 2006 Meeting Papers 207, Society for Economic Dynamics.
  2. Trevor Tombe, 2012. "Structural Change and Regional Convergence: The Case of Declining Transport Costs," Working Papers tt0061, Wilfrid Laurier University, Department of Economics, revised 2012.
  3. L. Rachel Ngai & Christopher Pissarides, 2004. "Structural change in a multi-sector model of growth," LSE Research Online Documents on Economics 3550, London School of Economics and Political Science, LSE Library.
  4. Bonatti, Luigi & Felice, Giulia, 2008. "Endogenous growth and changing sectoral composition in advanced economies," Structural Change and Economic Dynamics, Elsevier, vol. 19(2), pages 109-131, June.
  5. Nilsson, Desirée, 2007. "Changing Export Structure According to Income Elasticity - Kaldor revisited," Working Paper Series in Economics and Institutions of Innovation 92, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  6. Jaime Alonso-Carrera & Xavier Raurich, 2007. "Growth, Sectoral Composition, And The Wealth Of Nations," CAMA Working Papers 2007-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  7. Tombe, Trevor, 2010. "Regions, frictions, and migrations in a model of structural transformation," MPRA Paper 26641, University Library of Munich, Germany.
  8. Andrés Maroto-Sanchez, 2010. "Growth and productivity in the service sector: The state of the art," Working Papers 07/10, Instituto Universitario de Análisis Económico y Social.
  9. Matteo Lucchese, 2011. "Innovation, demand and structural change in Europe," Working Papers 1109, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2011.
  10. Foellmi, Reto & Zweimüller, Josef, 2005. "Income Distribution and Demand-Induced Innovations," CEPR Discussion Papers 4985, C.E.P.R. Discussion Papers.
  11. Trevor Tombe, 2010. "The Missing Food Problem: How Low Agricultural Imports Contribute to International Income and Productivity Differences," Working Papers tecipa-416, University of Toronto, Department of Economics.

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