Supply Side Structural Change

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Supply Side Structural Change

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Juan C. Cordoba (Rice University)

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Juan Carlos Cordoba

Abstract

The interest rate and the rate of economic growth are often regarded as roughly constant as economies grow. Moreover, the agricultural sector and rural population typically shrink. We show that an otherwise standard growth model that includes a backward and an advanced sector can account for these regularities. The mechanism works as follows: as the economy accumulates capital, labor flows from the backward sector to the advanced one. This migration prevents the usual diminishing marginal returns of capital. As a result, the interest rate and the growth rate of the economy remain constant during the transition to the steady state. The model predicts that developed countries must experience a sudden slowdown in their growth rates once the backward sector fully disappears. Productivity, as measured by the Solow residuals, also must slow down. Cross-country evidence supports these predictions of the model

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Paper provided by EconWPA in its series GE, Growth, Math methods with number 0211002.

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Length: 38 pages
Date of creation: 21 Nov 2002
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Handle: RePEc:wpa:wuwpge:0211002

Note: Type of Document - pdf; pages: 38 ; figures: included
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Paper
- Cordoba, Juan, 2002. "Supply Side Structural Change," Working Papers 2002-01, Rice University, Department of Economics. [Downloadable!]

Find related papers by JEL classification:
O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

This paper has been announced in the following NEP Reports:

NEP-ALL-2002-11-28 (All new papers)
NEP-DEV-2002-11-28 (Development)

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