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Investment Demand and Structural Change

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  • Pijoan-Mas, Josep
  • García-Santana, Manuel
  • Villacorta, Lucciano

Abstract

We study the joint evolution of the sectoral composition and the investment rate of developing economies. Using panel data for several countries in different stages of development, we document three novel facts: (a) the share of industry and the investment rate are strongly correlated and follow a hump-shaped profile with development, (b) investment goods contain more domestic value added from industry and less from services than consumption goods do, and (c) the evolution of the sectoral composition of investment and consumption goods differs from the one of GDP. We build and estimate a multi-sector growth model to fit these patterns and provide two important results. First, the hump-shaped evolution of investment demand explains half of the hump in industry with development. Second, asymmetric sectoral productivity growth helps explain the decline in the relative price of investment goods along the development path, which in turn increases capital accumulation and promotes growth.

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  • Pijoan-Mas, Josep & García-Santana, Manuel & Villacorta, Lucciano, 2016. "Investment Demand and Structural Change," CEPR Discussion Papers 11636, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11636
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    15. Fangzhi Wang & Hua Liao & Richard S. J. Tol, 2023. "Baumol's Climate Disease," Papers 2312.00160, arXiv.org.
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    19. Sen, Ali, 2020. "Structural change within the services sector, Baumol's cost disease, and cross-country productivity differences," MPRA Paper 99614, University Library of Munich, Germany.
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    More about this item

    Keywords

    Transitional dynamics; Neo-classical growth model; Structural change;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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