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Aggregate Implications of Changing Sectoral Trends

Author

Listed:
  • Andrew T. Foerster

    (Federal Reserve Bank of San Francisco)

  • Andreas Hornstein

    (Federal Reserve Bank of Richmond)

  • Pierre-Daniel G. Sarte

    (Federal Reserve Bank of Richmond)

  • Mark W. Watson

    (Princeton University and NBER)

Abstract

We find disparate trend variations in TFP and labor growth across major U.S. production sectors and study their implications for the post-war secular decline in GDP growth. Capital accumulation and the network structure of U.S. production amplify the effects of sector-specific changes in the trend growth rates of TFP and labor on trend GDP growth. We summarize this amplification effect in terms of sectoral multipliers that, for some sectors, can exceed 3 times their value added shares in the economy. We estimate that sector-specific factors have historically accounted for approximately 3/4 of long-run changes in GDP growth, leaving common or aggregate factors to explain only 1/4 of those changes. Trend GDP growth fell by nearly 3 percentage points over the post war period with the Construction sector alone contributing roughly 1 percentage point of that decline between 1950 and 1980. Idiosyncratic changes to trend growth in the Durable Goods sector then contributed an almost 2 percentage point decline in trend GDP growth between 2000 and the end of our sample in 2018. Remarkably, no sector has contributed any steady significant increase to the trend growth rate of GDP in the past 70 years.

Suggested Citation

  • Andrew T. Foerster & Andreas Hornstein & Pierre-Daniel G. Sarte & Mark W. Watson, 2021. "Aggregate Implications of Changing Sectoral Trends," Working Papers 2021-54, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2021-54
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    Cited by:

    1. Lehmann, Robert & Wikman, Ida, 2022. "Quarterly GDP Estimates for the German States," MPRA Paper 112642, University Library of Munich, Germany.
    2. Levchenko, Andrei & di Giovanni, Julian & Mejean, Isabelle, 2020. "Foreign Shocks as Granular Fluctuations," CEPR Discussion Papers 15458, C.E.P.R. Discussion Papers.
    3. Christian vom Lehn & Thomas Winberry, 2022. "The Investment Network, Sectoral Comovement, and the Changing U.S. Business Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(1), pages 387-433.
    4. Sen, A., 2024. "Structural Change at a Disaggregated Level: Sectoral Heterogeneity Matters," Janeway Institute Working Papers 2410, Faculty of Economics, University of Cambridge.
    5. Pauline Affeldt & Tomaso Duso & Klaus Gugler & Joanna Piechucka, 2021. "Market Concentration in Europe: Evidence from Antitrust Markets," Discussion Papers of DIW Berlin 1930, DIW Berlin, German Institute for Economic Research.
    6. Francisco J. Buera & Nicholas Trachter, 2024. "Sectoral Development Multipliers," Working Paper 24-02, Federal Reserve Bank of Richmond.
    7. Francisco J. Buera & Nicholas Trachter, 2024. "Sectoral Development Multipliers," Working Paper 24-02, Federal Reserve Bank of Richmond.
    8. Sen, A., 2024. "Structural Change at a Disaggregated Level: Sectoral Heterogeneity Matters," Cambridge Working Papers in Economics 2415, Faculty of Economics, University of Cambridge.
    9. Paul Gaggl & Aspen Gorry & Christian vom Lehn, 2023. "Structural Change in Production Networks and Economic Growth," CESifo Working Paper Series 10460, CESifo.
    10. Fangzhi Wang & Hua Liao & Richard S. J. Tol, 2023. "Baumol's Climate Disease," Papers 2312.00160, arXiv.org.
    11. Brad R. Humphreys & Scott Schuh & Corey J.M. Williams, "undated". "Learning by Doing, Productivity, and Growth: New Evidence on the Link between Micro and Macro Data," Working Papers 24-02, Department of Economics, West Virginia University.

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    More about this item

    Keywords

    trend growth; sectoral linkages; investment network;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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