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Sectoral Structural Change in a Knowledge Economy

  • Che, Natasha Xingyuan

The sectoral composition of US economy has shifted dramatically in the recent decades. At the same time, knowledge and information capital has become increasingly important in modern production process. This paper argues that a ready explanation for the recent sectoral structural change lies in the difference of intangible capital accumulation across sectors. In the two-sector model of the paper, as the importance of intangible capital increases, labor is shifted from direct goods production to creating sector-specific intangible capital. In the process, the real output and employment shares of the high-intangible sector increase. The model generates sectoral composition change and labor productivity trend that reasonably match the data. It also shows that conventional labor productivity calculation understates the "true" productivity in sectoral goods production. The underestimation is greater for the growing sector. The empirical regressions of the paper indicate a positive and significant association between intangible capital investment intensity and firms' future output and employment growth. The correlation is higher for firms in the growing sector. At the industry level, controlling for industry human capital intensity, physical capital intensity and IT investment level, intangible capital intensity is positively correlated with future industry real output and employment share growth. These findings are consistent with the implications of the model. The paper also presents evidence suggesting that most growing service industries are intangible capital intensive. Thus the theory developed here can also help to reconcile the expansion of the service sector and the seemingly low productivity of the sector.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19653.

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Date of creation: 29 Dec 2009
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Handle: RePEc:pra:mprapa:19653
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  1. Erik Brynjolfsson, 1994. "Information Assets, Technology and Organization," Management Science, INFORMS, vol. 40(12), pages 1645-1662, December.
  2. Oulton, Nicholas, 2001. "Must the Growth Rate Decline? Baumol's Unbalanced Growth Revisited," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 605-27, October.
  3. Corrado, Carol & Haltiwanger, John & Sichel, Daniel (ed.), 2005. "Measuring Capital in the New Economy," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226116129, June.
  4. Brynjolfsson, Erik, 2011. "Wired for Innovation: How Information Technology Is Reshaping the Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262013666, June.
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  7. Carol A. Corrado & Charles R. Hulten & Daniel E. Sichel, 2006. "Intangible Capital and Economic Growth," NBER Working Papers 11948, National Bureau of Economic Research, Inc.
  8. Kuznets, Simon, 1973. "Modern Economic Growth: Findings and Reflections," American Economic Review, American Economic Association, vol. 63(3), pages 247-58, June.
  9. Jean-Pierre Danthine & Xiangrong JIN, 2006. "Intangible Capital, Corporate Valuation and Asset Pricing," Swiss Finance Institute Research Paper Series 06-18, Swiss Finance Institute.
  10. Esteban Rossi-Hansberg & Mark L. J. Wright, 2007. "Establishment Size Dynamics in the Aggregate Economy," American Economic Review, American Economic Association, vol. 97(5), pages 1639-1666, December.
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  12. Ellen R. McGrattan & Edward C. Prescott, 2009. "Unmeasured investment and the puzzling U.S. boom in the 1990s," Staff Report 369, Federal Reserve Bank of Minneapolis.
  13. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  14. Higson, Chris, 2001. "Intangibles: Management, Measurement, and Reporting: by Baruch Lev, Washington, DC, Brookings Institution Press, 2001, pp. viii+216," The International Journal of Accounting, Elsevier, vol. 36(4), pages 501-503, 012.
  15. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
  16. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
  17. Carol Corrado & John Haltiwanger & Daniel Sichel, 2005. "Introduction to "Measuring Capital in the New Economy"," NBER Chapters, in: Measuring Capital in the New Economy, pages 1-10 National Bureau of Economic Research, Inc.
  18. Francisco J. Buera & Joseph P. Kaboski, 2006. "The Rise of the Service Economy," 2006 Meeting Papers 496, Society for Economic Dynamics.
  19. Daron Acemoglu & Veronica Guerrieri, 2006. "Capital Deepening and Non-Balanced Economic Growth," NBER Working Papers 12475, National Bureau of Economic Research, Inc.
  20. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and measuring organization capital," Staff Report 291, Federal Reserve Bank of Minneapolis.
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