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Determinants of Structural Change

Author

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  • Tomasz Swiecki

    (University of British Columbia)

Abstract

In this paper I ask which of the multiple mechanisms suggested in the literature are quantitatively important for understanding the process of structural change. I build a model combining four forces in a common framework: (i) sector-biased technological progress, (ii) nonhomothetic tastes, (iii) international trade and (iv) changing wedges between factor costs across sectors. I calibrate the model using the data for 45 diverse countries over the period 1970-2005 and use counterfactual simulations of the model to systematically assess the relative importance of the four determinants of structural change. I find that sector-biased technological change is overall the most important mechanism and it is essential for understanding the decline of manufacturing labor share and the corresponding growth in services in developed countries. Nonhomothetic preferences are key to accounting for movement of labor out of agriculture, which matters primarily for poorer countries. International trade and changes in relative factor costs across sectors are important for individual countries but their impact on the relocation of labor is less systematic. I also show that a model with homothetic preferences would overstate the importance of agriculture in accounting for differences in aggregate productivity across countries and over time. (Copyright: Elsevier)

Suggested Citation

  • Tomasz Swiecki, 2017. "Determinants of Structural Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 95-131, March.
  • Handle: RePEc:red:issued:14-247
    DOI: 10.1016/j.red.2017.01.007
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:jmacro:v:56:y:2018:i:c:p:292-310 is not listed on IDEAS
    2. Sposi, Michael J., 2015. "Evolving comparative advantage, sectoral linkages, and structural change," Globalization Institute Working Papers 231, Federal Reserve Bank of Dallas.
    3. Francisco J. Buera & Joseph P. Kaboski & Richard Rogerson, 2015. "Skill Biased Structural Change," NBER Working Papers 21165, National Bureau of Economic Research, Inc.
    4. Alonso-Carrera, Jaime & Raurich, Xavier, 2018. "Labor mobility, structural change and economic growth," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 292-310.
    5. repec:eee:streco:v:45:y:2018:i:c:p:49-63 is not listed on IDEAS
    6. Alvarez-Cuadrado, Francisco & Long, Ngo Van & Poschke, Markus, 2018. "Capital-labor substitution, structural change and the labor income share," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 206-231.
    7. Wolfgang Britz & Roberto Roson, 2018. "G-Rdem: A Gtap-Based Recursive Dynamic Cge Model For Long-Term Baseline Generation And Analysis," IEFE Working Papers 105, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    8. Wolfgang Britz & Roberto Roson, 2018. "Exploring Long Run Structural Change with a Dynamic General Equilibrium Model," Working Papers 2018: 12, Department of Economics, University of Venice "Ca' Foscari".
    9. Richard Rogerson & Joseph Kaboski & Francisco Buera, 2015. "Skill-Biased Structural Change and the Skill Premium," 2015 Meeting Papers 895, Society for Economic Dynamics.
    10. Gunes Arkadas Asik & Mohamed Ali Marouani & Michelle Marshalian & Ulas Karakoc, 2018. "Productivity, Structural Change and Skills Dynamics in Tunisia and Turkey," Working Papers 1269, Economic Research Forum, revised 10 Dec 2018.
    11. Roberto Roson, 2017. "Understanding the Global Dynamics of Sectoral Labor Productivity," Working Papers 2017:15, Department of Economics, University of Venice "Ca' Foscari".

    More about this item

    Keywords

    Structural change; Structural transformation; Nonhomothetic preferences; Sectoral productivity;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • 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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