IDEAS home Printed from https://ideas.repec.org/a/aea/aejmac/v12y2020i4p109-46.html
   My bibliography  Save this article

The Rise of Services and Balanced Growth in Theory and Data

Author

Listed:
  • 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.

Suggested Citation

  • 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
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/mac.20180373
    Download Restriction: no
    File URL: https://doi.org/10.3886/E111582V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20180373.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20180373.ds
    Download Restriction: no
    File URL: https://libkey.io/10.1257/mac.20180373?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Manuel García‐Santana & Josep Pijoan‐Mas & Lucciano Villacorta, 2021. "Investment Demand and Structural Change," Econometrica, Econometric Society, vol. 89(6), pages 2751-2785, November.
    2. Juan Antolin-Diaz & Thomas Drechsel & Ivan Petrella, 2017. "Tracking the Slowdown in Long-Run GDP Growth," The Review of Economics and Statistics, MIT Press, vol. 99(2), pages 343-356, May.
    3. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    4. Francesco Caselli & James Feyrer, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 535-568.
    5. L. Rachel Ngai & Christopher A. Pissarides, 2007. "Structural Change in a Multisector Model of Growth," American Economic Review, American Economic Association, vol. 97(1), pages 429-443, March.
    6. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    7. Richard Blundell & Martin Browning & Costas Meghir, 1994. "Consumer Demand and the Life-Cycle Allocation of Household Expenditures," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(1), pages 57-80.
    8. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    9. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    10. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(3), pages 249-283.
    11. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Relative Prices and Relative Prosperity," American Economic Review, American Economic Association, vol. 97(3), pages 562-585, June.
    12. Echevarria, Cristina, 1997. "Changes in Sectoral Composition Associated with Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 431-452, May.
    13. Berthold Herrendorf & Richard Rogerson & ?kos Valentinyi, 2013. "Two Perspectives on Preferences and Structural Transformation," American Economic Review, American Economic Association, vol. 103(7), pages 2752-2789, December.
    14. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
    15. Jushan Bai & Robin L. Lumsdaine & James H. Stock, 1998. "Testing For and Dating Common Breaks in Multivariate Time Series," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(3), pages 395-432.
    16. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    17. Timo Boppart, 2014. "Structural Change and the Kaldor Facts in a Growth Model With Relative Price Effects and Non‐Gorman Preferences," Econometrica, Econometric Society, vol. 82, pages 2167-2196, November.
    18. Samaniego, Roberto M & Yu Sun, Juliana, 2016. "Investment-Specific Technical Change and Growth around the World," Economics and Statistics Working Papers 7-2016, Singapore Management University, School of Economics.
    19. Nicholas Oulton & Sylaja Srinivasan, 2003. "Capital stocks, capital services, and depreciation: an integrated framework," Bank of England working papers 192, Bank of England.
    20. Mr. Sergio Rebelo & Ms. Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 2001/085, International Monetary Fund.
    21. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    22. Alessio Moro, 2015. "Structural Change, Growth, and Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 259-294, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sen, A., 2024. "Structural Change at a Disaggregated Level: Sectoral Heterogeneity Matters," Janeway Institute Working Papers 2410, Faculty of Economics, University of Cambridge.
    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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mariarosaria Comunale & Giulia Felice, 2022. "Trade and structural change: An empirical investigation," International Economics, CEPII research center, issue 171, pages 80-109.
    2. Margarida Duarte & Diego Restuccia, 2020. "Relative Prices and Sectoral Productivity," Journal of the European Economic Association, European Economic Association, vol. 18(3), pages 1400-1443.
    3. 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.
    4. Miguel Leon-Ledesma & Alessio Moro, 2016. "The rise of the service economy and the real return on capital," Studies in Economics 1604, School of Economics, University of Kent.
    5. Diego Comin & Danial Lashkari & Martí Mestieri, 2021. "Structural Change With Long‐Run Income and Price Effects," Econometrica, Econometric Society, vol. 89(1), pages 311-374, January.
    6. Manuel García‐Santana & Josep Pijoan‐Mas & Lucciano Villacorta, 2021. "Investment Demand and Structural Change," Econometrica, Econometric Society, vol. 89(6), pages 2751-2785, November.
    7. Chen, Chaoran, 2020. "Technology adoption, capital deepening, and international productivity differences," Journal of Development Economics, Elsevier, vol. 143(C).
    8. Marcolino, Marcos, 2022. "Accounting for structural transformation in the U.S," Journal of Macroeconomics, Elsevier, vol. 71(C).
    9. Valentinyi, Akos & Herrendorf, Berthold & Duernecker, Georg, 2017. "Structural Change within the Service Sector and the Future of Baumol's Disease," CEPR Discussion Papers 12467, C.E.P.R. Discussion Papers.
    10. Chen, Chaoran, 2020. "Capital-skill complementarity, sectoral labor productivity, and structural transformation," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    11. Porzio, Tommaso & Santangelo, Gabriella, 2017. "Structural Change and the Supply of Agricultural Workers," CEPR Discussion Papers 12495, C.E.P.R. Discussion Papers.
    12. Alonso-Carrera, Jaime & Raurich, Xavier, 2015. "Demand-based structural change and balanced economic growth," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 359-374.
    13. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    14. Bridgman, Benjamin & Duernecker, Georg & Herrendorf, Berthold, 2018. "Structural transformation, marketization, and household production around the world," Journal of Development Economics, Elsevier, vol. 133(C), pages 102-126.
    15. Aristizabal-Ramirez, Maria & Leahy, John & Tesar, Linda L., 2023. "A north-south model of structural change and growth," Journal of Monetary Economics, Elsevier, vol. 133(C), pages 77-102.
    16. Paul Gaggl & Aspen Gorry & Christian vom Lehn, 2023. "Structural Change in Production Networks and Economic Growth," CESifo Working Paper Series 10460, CESifo.
    17. Michael Sposi, 2015. "Navigating the Structure of the Global Economy," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 10-17.
    18. Felice, Giulia, 2016. "Size and composition of public investment, sectoral composition and growth," European Journal of Political Economy, Elsevier, vol. 44(C), pages 136-158.
    19. Ali Sen, 2024. "Structural Change at a Disaggregated Level: Sectoral Heterogeneity Matters," Working Papers 048, The Productivity Institute.
    20. Shawn Xiaoguang Chen & Yudan Cheng & Liutang Gong & Wenjia Tian, 2023. "A Big Push of Panda from the Ground: Land Subsidy and Structural Transformation in China," Economics Discussion / Working Papers 23-09, The University of Western Australia, Department of Economics.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:12:y:2020:i:4:p:109-46. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.