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Demand bias as an explanation for structural change

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  • Gundlach, Erich

Abstract

An income elastic demand for services is usually regarded as one of the major explanations for the observed pattern of structural change in the world economy. Recent empirical findings cast some doubt on this demand-bias hypothesis. This paper presents a simple model of structural change that allows an assessment of the implications of alternative demand elasticities. The analysis focusses on restrictions for the set of consistent parameter values derived from demand theory. The results show that lagging productivity growth in the service sector and a homothetic or income inelastic demand for services do not suffice to explain the stylized facts.

Suggested Citation

  • Gundlach, Erich, 1993. "Demand bias as an explanation for structural change," Kiel Working Papers 594, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkwp:594
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    1. Wolff, Edward N., 1985. "Unbalanced Growth, Capital Accumulation and Productivity Growth," Working Papers 85-19, C.V. Starr Center for Applied Economics, New York University.
    2. Hammes, David L & Rosa, Jean-Jacques & Grubel, Herbert G, 1989. "The National Accounts, Household Service Consumption and Its Monetization," Kyklos, Wiley Blackwell, vol. 42(1), pages 3-15.
    3. Schultz, T Paul, 1985. "Changing World Prices, Women's Wages, and the Fertility Transition: Sweden, 1860-1910," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1126-1154, December.
    4. Locay, Luis, 1990. "Economic Development and the Division of Production between Households and Markets," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 965-982, October.
    5. Gundlach, Erich, 1993. "Die Dienstleistungsnachfrage als Determinante des wirtschaftlichen Strukturwandels," Open Access Publications from Kiel Institute for the World Economy 763, Kiel Institute for the World Economy (IfW).
    6. Bergstrand, Jeffrey H, 1991. "Structural Determinants of Real Exchange Rates and National Price Levels: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 81(1), pages 325-334, March.
    7. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Jochen Hartwig, 2010. "Baumol's Diseases: The Case of Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 146(III), pages 533-552, September.
    2. Pugno, Maurizio, 2006. "The service paradox and endogenous economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 17(1), pages 99-115, January.
    3. Notarangelo, Micaela, 1999. "Unbalanced growth: a case of structural dynamics," Structural Change and Economic Dynamics, Elsevier, vol. 10(2), pages 209-223, June.
    4. Andreja Benkovic & Juan Felipe Mejía, 2008. "Tourism as a driver of economic development: The Colombian experience," DOCUMENTOS DE TRABAJO CIEF 010630, UNIVERSIDAD EAFIT.
    5. Stijepic, Denis & Wagner, Helmut, 2008. "Impacts of Intermediate Trade on Structural Change," MPRA Paper 40841, University Library of Munich, Germany, revised 23 Aug 2012.
    6. Henk L.M. Kox, 2003. "Sources of structural growth in business services," Industrial Organization 0309004, EconWPA.
    7. Sasaki, Hiroaki, 2007. "The rise of service employment and its impact on aggregate productivity growth," Structural Change and Economic Dynamics, Elsevier, vol. 18(4), pages 438-459, December.
    8. Gundlach, Erich & Nunnenkamp, Peter, 1997. "Labor markets in the global economy: How to prevent rising wage gaps and unemployment," Kiel Discussion Papers 305, Kiel Institute for the World Economy (IfW).
    9. Hartwig, Jochen, 2012. "Testing the growth effects of structural change," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 11-24.
    10. Jochen Kurt Hartwig, 2010. "Baumol's Diseases," KOF Working papers 10-250, KOF Swiss Economic Institute, ETH Zurich.
    11. de Groot, H.L.F., 1998. "The Determination and Development of Sectoral Structure," Discussion Paper 1998-125, Tilburg University, Center for Economic Research.
    12. Kurose, Kazuhiro, 2009. "The relation between the speed of demand saturation and the dynamism of the labour market," Structural Change and Economic Dynamics, Elsevier, vol. 20(2), pages 151-159, June.

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