Structural Change With Long-Run Income and Price Effects

Diego Comin*, Danial Lashkari, Martí Mestieri

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We present a new multi-sector growth model that features nonhomothetic, constant elasticity of substitution preferences, and accommodates long-run demand and supply drivers of structural change for an arbitrary number of sectors. The model is consistent with the decline in agriculture, the hump-shaped evolution of manufacturing, and the rise of services over time. We estimate the demand system derived from the model using household-level data from the United States and India, as well as historical aggregate-level panel data for 39 countries during the postwar period. The estimated model parsimoniously accounts for the broad patterns of sectoral reallocation observed among rich, miracle, and developing economies. Our estimates support the presence of strong nonhomotheticity across time, income levels, and countries. We find that income effects account for the bulk of the within-country evolution of sectoral reallocation.

Original languageEnglish (US)
Pages (from-to)311-374
Number of pages64
JournalEconometrica
Volume89
Issue number1
DOIs
StatePublished - Jan 2021

Keywords

  • implicitly additively separable preferences
  • nonhomothetic CES preferences
  • Structural transformation

ASJC Scopus subject areas

  • Economics and Econometrics

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