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Structural Change in an Open Economy

  • Jing Zhang

    (Department of Economics, University of Michigan)

  • Kei-Mu Yi

    (Research Department, Federal Reserve Bank of Philadelphia)

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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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 804.

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Date of creation: 2009
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Handle: RePEc:red:sed009:804
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