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Structural change in an open economy

  • Kei-Mu Yi
  • Jing Zhang

We develop a tractable, three-sector model to study structural change in a two-country world. The model features an endogenous pattern of trade dictated by comparative advantage. We derive an intuitive expression linking sectoral employment shares to sectoral expenditure shares and to sectoral net export shares of total GDP. Changes in productivity and in trade barriers affect expenditure and net export shares, and thus, employment shares, across sectors. We show how these driving forces can generate the "hump" pattern that characterizes the manufacturing employment share as a country develops, even when manufacturing is the sector with the highest productivity growth.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 456.

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Date of creation: 2011
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Handle: RePEc:fip:fedmsr:456
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