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Determinants of Structural Change

Author

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  • Tomasz Swiecki

    (University of British Columbia)

Abstract

In this paper I ask which of the multiple mechanisms suggested in the literature are quantitatively important for understanding the process of structural change. I build a model combining four forces in a common framework: (i) sector-biased technological progress, (ii) nonhomothetic tastes, (iii) international trade and (iv) changing wedges between factor costs across sectors. I calibrate the model using the data for 45 diverse countries over the period 1970-2005 and use counterfactual simulations of the model to assess the relative importance of the four determinants of structural change. I find that sector-biased technological change is overall the most important mechanism and it is essential for understanding the decline of manufacturing labor share and the corresponding growth in services in developed countries. Nonhomothetic preferences are key to accounting for movement of labor out of agriculture, which matters primarily for poorer countries. Trade and intersectoral wedges are important for individual countries but their impact on the relocation of labor is less systematic. I also show that a model with homothetic preferences would overstate the importance of agriculture in accounting for differences in aggregate productivity across countries and over time.

Suggested Citation

  • Tomasz Swiecki, 2014. "Determinants of Structural Change," 2014 Meeting Papers 870, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:870
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    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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