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Sectoral and Aggregate Structural Change

Author

Listed:
  • Andrew Foerster

    (Federal Reserve Bank of San Francisco)

  • Andreas Hornstein

    (Federal Reserve Bank of Richmond)

  • Mark Watson

    (Princeton University)

  • Pierre-Daniel Sarte

    (Federal Reserve Bank of Richmond)

Abstract

We estimate that trends in TFP and employment growth have steadily declined across a majority of U.S. sectors over the post-war period. Most of the secular decline in aggregate TFP and employment growth results from the combination of sector-specific rather than aggregate disturbances. We embed these observations into a dynamic multi-sector framework in which materials and capital used in each sector are produced by other sectors. The presence of capital, in particular, induces quantitatively important sectoral multiplier effects from production linkages on GDP growth. Thus, in some sectors, the effects of changes in TFP or employment growth on GDP growth may be as large as 3 times their share in the economy. Taken together, structural changes across sectors have lowered trend GDP growth by around 2 percentage points since the early 1950s. Sustained contractions in growth specific to Durable and Non-Durable Goods, and most importantly Construction, account for close to 2=3 of this decline. Because of capital accumulation, structural changes have endogenously persistent effects. Consequently, we estimate that trend GDP growth will continue to decline for the next 10 years even if trend TFP and employment growth stabilize.

Suggested Citation

  • Andrew Foerster & Andreas Hornstein & Mark Watson & Pierre-Daniel Sarte, 2019. "Sectoral and Aggregate Structural Change," 2019 Meeting Papers 532, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:532
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    Cited by:

    1. Francisco J. Buera & Nicholas Trachter, 2024. "Sectoral Development Multipliers," Working Paper 24-02, Federal Reserve Bank of Richmond.
    2. Sen, A., 2024. "Structural Change at a Disaggregated Level: Sectoral Heterogeneity Matters," Janeway Institute Working Papers 2410, Faculty of Economics, University of Cambridge.
    3. Lehmann, Robert & Wikman, Ida, 2022. "Quarterly GDP Estimates for the German States," MPRA Paper 112642, University Library of Munich, Germany.
    4. Paul Gaggl & Aspen Gorry & Christian vom Lehn, 2023. "Structural Change in Production Networks and Economic Growth," CESifo Working Paper Series 10460, CESifo.
    5. Julian di Giovanni & Andrei A. Levchenko & Isabelle Mejean, 2024. "Foreign Shocks as Granular Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 132(2), pages 391-433.
    6. Christian vom Lehn & Thomas Winberry, 2022. "The Investment Network, Sectoral Comovement, and the Changing U.S. Business Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(1), pages 387-433.
    7. Pauline Affeldt & Tomaso Duso & Klaus Gugler & Joanna Piechucka, 2021. "Market Concentration in Europe: Evidence from Antitrust Markets," CESifo Working Paper Series 8866, CESifo.
    8. Fangzhi Wang & Hua Liao & Richard S. J. Tol, 2023. "Baumol's Climate Disease," Papers 2312.00160, arXiv.org.
    9. Bunel, Simon & Bijnens, Gert & Botelho, Vasco & Falck, Elisabeth & Labhard, Vincent & Lamo, Ana & Röhe, Oke & Schroth, Joachim & Sellner, Richard & Strobel, Johannes & Anghel, Brindusa, 2024. "Digitalisation and productivity," Occasional Paper Series 339, European Central Bank.
    10. Brad R. Humphreys & Scott Schuh & Corey J.M. Williams, "undated". "Learning by Doing, Productivity, and Growth: New Evidence on the Link between Micro and Macro Data," Working Papers 24-02, Department of Economics, West Virginia University.

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    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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