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The Rise of Services and Balanced Growth in Theory and Data

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  • Miguel León-Ledesma
  • Alessio Moro

Abstract

We investigate the effect of structural transformation on the process of economic growth. Using a two-sector growth model we show that, in addition to Baumol's cost disease, structural transformation from goods to services generates other predictions that are in line with cross-country growth facts: an increase in the real investment rate, a decline in the real interest rate and the marginal product of capital, and an acceleration of investment-specific technological change as the share of services increases. The model calibrated to US data can account for the elasticity of real investment rates to the share of services measured in cross-country data.

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  • Miguel León-Ledesma & Alessio Moro, 2020. "The Rise of Services and Balanced Growth in Theory and Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(4), pages 109-146, October.
    • Handle: RePEc:aea:aejmac:v:12:y:2020:i:4:p:109-46
    DOI: 10.1257/mac.20180373
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    Cited by:

    1. Ali Sen, 2024. "Structural Change at a Disaggregated Level: Sectoral Heterogeneity Matters," Working Papers 048, The Productivity Institute.
    2. Francisco J. Buera & Joseph P. Kaboski & Martí Mestieri & Daniel G. O'Connor, 2020. "The Stable Transformation Path," NBER Working Papers 27731, National Bureau of Economic Research, Inc.
    3. Simon Alder & Timo Boppart & Andreas Müller, 2022. "A Theory of Structural Change That Can Fit the Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(2), pages 160-206, April.
    4. Dennis C. Hutschenreiter & Tommaso Santini & Eugenia Vella, 2022. "Automation and sectoral reallocation," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(1), pages 335-362, May.
    5. Mariano Kulish & James Morley & Nadine Yamout & Francesco Zanetti, 2023. "Dutch Disease, Unemployment and Structural Change," Working Papers 262, Red Nacional de Investigadores en Economía (RedNIE).
    6. Maja Bacovic & Zivko Andrijasevic & Julija Cerovic Smolovic, 2022. "Structural Changes and Growth in Europe: Are Knowledge-intensive Services Changing Paradigm of Expansion of Services as a Long-term Growth-diminishing Factor?," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(2), pages 124-143, February.
    7. Liao, Hua & Ye, Huiying, 2023. "Endogenous economic structure, climate change, and the optimal abatement path," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 417-429.
    8. Moro, Alessio & Valdes, Carlo, 2019. "Stuctural transformation in general equilibrium," MERIT Working Papers 2019-049, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    9. Duernecker, Georg & Herrendorf, Berthold & Valentinyi, Ákos, 2021. "The productivity growth slowdown and Kaldor’s growth facts," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    10. Rubini, Loris & Moro, Alessio, 2019. "Stochastic Structural Change," MPRA Paper 96144, University Library of Munich, Germany.
    11. Comunale, Mariarosaria & Felice, Giulia, 2022. "Trade and structural change: An empirical investigation," International Economics, Elsevier, vol. 171(C), pages 58-79.
    12. Fangzhi Wang & Hua Liao & Richard S. J. Tol, 2023. "Baumol's Climate Disease," Papers 2312.00160, arXiv.org.
    13. Valentinyi, Akos & Duernecker, Georg & Herrendorf, Berthold, 2020. "Measuring Aggregate Economic Activity," CEPR Discussion Papers 12300, C.E.P.R. Discussion Papers.
    14. Chen, Chaoran, 2020. "Capital-skill complementarity, sectoral labor productivity, and structural transformation," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    15. Berthold Herrendorf & Richard Rogerson & Akos Valentinyi, 2019. "Growth and the Kaldor Facts," Review, Federal Reserve Bank of St. Louis, vol. 101(4), pages 259-276.
    16. Bripi, Francesco & Bronzini, Raffaello & Gentili, Elena & Linarello, Andrea & Scarinzi, Elisa, 2024. "Structural change and firm dynamics in Southern Italy," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 678-691.
    17. Duarte, Margarida, 2020. "Manufacturing consumption, relative prices, and productivity," Journal of Macroeconomics, Elsevier, vol. 65(C).

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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