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Structural Change in an Open Economy

  • Kei-Mu Yi

    (Federal Reserve Bank of Philadelphia)

  • Jing Zhang

    (University of Michigan)

We develop a tractable, three-sector model to study structural change in an open economy. 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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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers576-600/r595.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 595.

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Length: 38 pages
Date of creation: Apr 2010
Handle: RePEc:mie:wpaper:595
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