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Structural change in an open economy

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  • Timothy Uy
  • Kei-Mu Yi
  • Jing Zhang

Abstract

We study the importance of international trade in structural change. Our framework has both productivity and trade cost shocks, and allows for non-unitary income and substitution elasticities. We calibrate our model to investigate South Korea's structural change between 1971 and 2005. We find that the shock processes, propagated through the model's two main transmission mechanisms, non-homothetic preferences and the open economy, explain virtually all of the evolution of agriculture and services labor shares, and the rising part of the hump-shape in manufacturing. Counterfactual exercises show that the role of the open economy is quantitatively important for explaining South Korea's structural change.

Suggested Citation

  • Timothy Uy & Kei-Mu Yi & Jing Zhang, 2013. "Structural change in an open economy," Working Paper Series WP-2013-09, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-2013-09
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    More about this item

    Keywords

    Gross domestic product; Labor mobility; Manufacturing industries;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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