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Economic growth and sector dynamics

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  • Zeira, Joseph
  • Zoabi, Hosny

Abstract

This paper analyzes the endogenous determination of sectors in a growing economy. It assumes that there are traditional sectors and modern sectors and economic growth is driven by rising productivity of the modern sectors. It also assumes that individuals are heterogeneous, which leads to increasing marginal opportunity costs in creating new modern sectors. We show that under these main assumptions, economic growth first increases diversification to sectors and then reduces it. We also show that for the equilibrium to be stable and well-behaved, it is required that the modern and traditional sectors should be substitutes and not complements.

Suggested Citation

  • Zeira, Joseph & Zoabi, Hosny, 2015. "Economic growth and sector dynamics," European Economic Review, Elsevier, vol. 79(C), pages 1-15.
  • Handle: RePEc:eee:eecrev:v:79:y:2015:i:c:p:1-15
    DOI: 10.1016/j.euroecorev.2015.06.007
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    References listed on IDEAS

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    1. repec:spr:qualqt:v:51:y:2017:i:3:d:10.1007_s11135-016-0321-6 is not listed on IDEAS
    2. repec:spr:qualqt:v:51:y:2017:i:3:d:10.1007_s11135-016-0337-y is not listed on IDEAS
    3. Marković, Dušan & Petković, Dalibor & Nikolić, Vlastimir & Milovančević, Miloš & Petković, Biljana, 2017. "Soft computing prediction of economic growth based in science and technology factors," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 217-220.
    4. repec:ddj:fseeai:y:2017:i:3:p:119-124 is not listed on IDEAS
    5. Milačić, Ljubiša & Jović, Srđan & Vujović, Tanja & Miljković, Jovica, 2017. "Application of artificial neural network with extreme learning machine for economic growth estimation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 285-288.
    6. Đokić, Aleksandar & Jović, Srđan, 2017. "Evaluation of agriculture and industry effect on economic health by ANFIS approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 396-399.
    7. repec:spr:qualqt:v:51:y:2017:i:3:d:10.1007_s11135-016-0331-4 is not listed on IDEAS
    8. Larisa Popova & Svetlana Popova & Tatiana Dugina & Dmitry Korobeynikov & Olga Korobeynikova, 2015. "Cluster Policy in Agrarian Sphere in Implementation of Concept of Economic Growth," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 31-40.
    9. Maksimović, Goran & Jović, Srđan & Jovanović, Radomir, 2017. "Economic growth rate management by soft computing approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 520-524.

    More about this item

    Keywords

    Traditional sectors; Modern sectors; Diversification; Economic growth; Substitutability;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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